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§2.14 GAIN(c) Determination of GainOn a sale or other disposition of property, gain (or loss) is computed as the amountrealized from the sale or disposition of the property less the adjusted basis 52 inthe property. 53 Expressed mathematically, the formula is:Gain (or Loss) = Amount Realized – Adjusted BasisThe amount realized on the sale or disposition is the sum of any money receivedplus the fair market value of any property received in the transaction. 54(d) RealizationIn order for there to be a gain, there must be a realization of income. The law, asexpressed in a Supreme Court opinion, 55 requires that accessions to wealth mustbe realized for there to be income subject to income taxation.Economically, gain (or loss) is dynamic, occurring over a period of time. Thefair market value of property fluctuates constantly. Property may gain or losevalue during the entire time it is owned. This increase or decrease in fair marketvalue represents the economic gain or loss associated with the ownership of theproperty over time.Furthermore, economic gain (or loss) can be real or nominal over time. Realgain (or loss) is the actual increase (or decrease) in value of the asset over time.Nominal gain (or loss) is the relative increase (or decrease) in value of the assetover time.To understand the difference between real and nominal value, one must considerthe economic price factor of inflation or deflation in the market. Over time,prices in the marketplace change, possibly reflecting differences in value associatedwith certain assets. This is real change. Change may also occur in the value ofmoney. If money becomes less valuable (or if the supply of money increases), thevalue of an asset in relation to money correspondingly changes. If the real value ofan item of property remains constant, but the relative value of money becomesless, the item will cost more because the value of money has declined. This isa phenomenon typical of an inflationary period. Prices for a commodity rise, eventhough the commodity’s real value to consumers remains unchanged. The pricechange is a nominal increase due to the change in value of money, while theunderlying real value of the commodity remains constant.(e) AppreciationThe term appreciation refers to the increase in the value of property. As discussedabove, appreciation (the increase in value of property) is composed of two elements,real and nominal changes in the value of property. One element, realappreciation, reflects the true increase in economic value of the property. Theother, nominal appreciation, reflects the relative effect of the change in the valueof money, not the change in value of the property.52 IRC § 1011.53 IRC § 1001(a).54 IRC § 1001(b).55 Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). 43