Question

what are prater's realized and recognized gain on the exchange and its basis in the assets it received in the exchange?

Answer 1

Prater's realized gain is the actual gain or loss recognized for tax purposes. The recognized gain is the portion subject to income tax. The basis in the assets received is the value assigned for tax purposes.

Step-by-step explanation:

Prater's realized gain on the exchange is the actual gain or loss that is recognized for tax purposes when the exchange of assets takes place. On the other hand, recognized gain is the portion of the realized gain that is subject to income tax.

The basis in the assets received in the exchange refers to the value assigned to those assets for tax purposes. It is important to accurately determine the basis in order to calculate future gains or losses.

Answer 2

Realized gain is the increase in value of exchanged assets, while recognized gain is the taxable portion of this gain. Prater's basis in the new asset is usually the original basis of the asset given up, adjusted for additional investment or cash. Exchange specifics determine the exact gains and new basis.

Step-by-step explanation:

When a taxpayer like Prater engages in an exchange of assets, the Internal Revenue Service (IRS) is interested in whether there are any gains or losses to be recognized for tax purposes. Realized gain is calculated by subtracting the original cost (basis) of the asset given up in the exchange from the fair market value of the asset received. However, if the exchange is of like-kind properties, which are used for business or investment, typically the gain is not immediately recognized for tax purposes.

Recognized gain, on the other hand, is the portion of the realized gain that is subject to tax in the year of the exchange. In some scenarios, depending on the nature of the transaction and whether it qualifies for like-kind exchange treatment under Section 1031 of the Internal Revenue Code, none or part of the realized gain might be recognized.

The basis in the new asset after the exchange generally takes the basis of the old asset, adjusted for any additional investment or cash received (boot). If boot is received in the transaction, some gain may be recognized to the extent of the boot.

For accurate computation and tax reporting, Prater would need to consult the relevant tax laws or a tax professional given the complex nature of these transactions.