Which of the following realized gains results in a recognized gain?
A) Iowa cropland exchanged for a Minnesota warehouse.
B) Involuntary conversion.
C) Sale to a related party.
D) Farm machinery traded for farm machinery.

Question

Quizplus · Accepted Answer

Sale to a related party results in a recognized gain because the transaction may be subject to related party rules, which require the tax treatment to reflect the fair market value of the property exchanged. The other options may result in a realized gain, but may not be subject to recognition for various reasons (such as like-kind exchange treatment for option A or involuntary conversion rules for option B). Option D may result in a realized gain if the fair market value of the machinery received in exchange is greater than the adjusted basis of the machinery given up, but it would not result in a recognized gain if the like-kind exchange rules apply.

Which of the Following Realized Gains Results in a Recognized