Brad Johnson owned a parcel of investment real estate that had an adjusted basis

Question

Brad Johnson owned a parcel of investment real estate that had an adjusted basis of $25,000 and a fair market value of $40,000. During 2015, Johnson exchanged his investment real estate for the items of property listed below.

Land to be held for investment (fair market value) $35,000

A small sailboat to be held for personal use (fair market value) 3,000

Cash 2,000

What is Johnson's recognized gain and basis in his new investment real estate?

Please show all work and explain how you got the answer.

Don't copy other peoples answers please.

Explanation / Answer

Johnson’s recognized gain is:

Johnson is selling off real estate whose basis is $25,000 and instead holding investment whose fair market value is $35,000

Hence; recognized gain = $35,000 - $25000 = $10,000

Since there are no other costs involved no addition or subtraction needs to be made.

Johnson’s basis for the new investment will be $35,000 which is the fair market value.

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