Question

In a Section 1031 exchange, Henry Higgins exchanged a piece of equipment with a basis of $100,000 and a fair market value of $125,000 for another piece of equipment with a fair market value of $160,000. Henry also gave up 100 shares of Bookbinder, Inc. stock worth $25,000 with an adjusted basis of $15,000. What is Henry's realized gain and his recognized gain?

Answer 1

the realized gain will be $ 45,000 and the recognized gain will be 10,000

Explanation

realized gain = 160,000 - 100,000 - 15,000 = 45,000

the realized gain will calculated by reducing the basis of exchanged equipment and stock from the fair market value of equipment bought in as part of exchange

Recognized gain = 160,000 - 125,000 - 25,000 = 10,000

Fair market value exchanged equipment and stock should be reduced from the fair market value of equipment bought in as part of exchange