Asked Mar 25, 2019
  1. Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for its fair market value of $100,000.
  2. A . What is Lisa's realized and recognized gain or loss?
  3. B. What is Alfred's recognized gain or loss if he subsequently sells the property for $138,000? For $80,000?

Expert Answer

Step 1


Recognized Gain/Loss: It is difference between the cost price of the asset less its selling price. It is the gain or loss earned from sale of asset or investment.

Realized Gain: It is the amount that is actually earned from sale of asset or investment. All the cost related to the sale of asset or investment are deducted from gain/loss to determine Realized gain/loss. It is gain/loss that is realized by the company.

Step 2

A) Adjusted Basis of the property = $130,000

Fair Market Value (FMV) of the property = $100,000

It is also mentioned that Lisa sold the property at FMV.

Adjusted Basis is the value of property after deducting all the tax related cost.

Realized Gain/(Loss) = Selling Price – Adjusted Basis

Realized Gain/(Loss) = $100,000 - $130,000

Realized Gain/(Loss) = ($30,000)

Moreover, the Cost Price i.e. the value of the property at which Liza bought it, is not given. Hence, Recognized gain/loss cannot be determined.

Step 3

B) If, Alfred sells property at $138,000 then,

Cost Price of the property = $100,000

Selling Price of the property = $138,000

Recognized Gain/(Loss) = Selling Price – Cost Price

Recognized Gain/(Loss) = $138,000 - $100,000

Recognized Gain/(Loss) = $38,000

If Alfred sells the property at $138,000 then his recognized gain would be $38,000.

If, Alfred sells property at $80,...

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