Hank exchanged an old asset with a $12,000 adjusted basis for a new asset with a $32,000 FMV plus $2,000 cash. Compute Hank's realized and recognized gain if the new and old assets are like-kind properties.
A) $20,000 realized gain; $0 recognized gain
B) $22,000 realized gain; $0 recognized gain
C) $22,000 realized gain; $2,000 recognized gain
D) $2,000 realized gain; $2,000 recognized gain

Question

Quizplus · Accepted Answer

Hank's realized gain is the FMV of the new asset plus the cash received minus the adjusted basis of the old asset, which is $32,000 + $2,000 - $12,000 = $22,000. However, since the exchange is for like-kind properties, the gain is not recognized and Hank's recognized gain is zero, even though there is a realized gain. Therefore, the answer is C.

Hank Exchanged an Old Asset with a $12,000 Adjusted Basis