When you have an asset that has increased in value, such as a car or a piece of real estate, it is important to account for the change. When you sell the car or house at a higher price than what you bought it for, there will be a gain on your books.
However, if the assets decrease in value instead of increasing during your time holding them then this would be considered a loss and should also be accounted for accordingly. Goal: to provide a comprehensive explanation of accounting for gains and losses on the exchange of assets.
Accounting for Gains and Losses of Assets – A gain or loss on the exchange of similar assets will be recorded if the transaction has. Been in possession longer than twelve months (this is more common with long term investments such as stocks, bonds, real estate).
The seller acquires an equally valuable asset at less than their carrying value (such as buying something from someone else who was selling it cheaper versus what you just sold). If this occurs then there will be a realized gain which would affect your taxes. On the other hand, if they were selling back to you at higher cost than what.