Definition:
A built-in gain or loss is the difference between the fair market value of an asset at the time it is transferred to a tax-deferred retirement account, such as an IRA or 401(k), and its basis.
Key points about built-in gains or losses:
- Tax-deferred accounts: Built-in gains or losses are relevant to tax-deferred retirement accounts.
- Fair market value: The fair market value is the price at which the asset could be sold in an open market.
- Basis: The basis of an asset is its tax cost.
- Tax implications: Built-in gains or losses can have tax implications when the asset is sold or distributed from the retirement account.
Why are built-in gains or losses important?
- Tax planning: Understanding built-in gains or losses is important for tax planning, as they can affect the tax consequences of selling or distributing assets from a retirement account.
- Retirement planning: Built-in gains or losses can impact the overall tax efficiency of retirement planning.
In essence, a built-in gain or loss is the difference between the fair market value and basis of an asset when it is transferred to a tax-deferred retirement account, and it can have significant tax implications.
