Question

Rex received investment land from Holly as a gift on September 30th of last year. Holly’s adjusted basis was $50,000, and the land was valued at $40,000 at the time of the gift. If Rex sells the land on May 12th this year at the following prices, what is the amount of Rex’s recognized gain (loss)? (Enter loss as a negative number)

Selling Price = $32,000
a) $10,000
b) $8,000
c) $18,000
d) -$2,000

Selling Price = $70,000
a) $30,000
b) $20,000
c) $10,000
d) -$10,000

Selling Price = $45,000
a) $5,000
b) -$5,000
c) $15,000
d) $25,000

Answer 1

To calculate Rex's recognized gain or loss from selling the investment land, subtract the adjusted basis from the selling price. If the result is negative, it represents a loss. If the result is positive, it represents a gain.

Step-by-step explanation:

To determine Rex's recognized gain or loss, we need to compare the selling price with the adjusted basis of the land. The adjusted basis is the original cost basis plus any adjustments. In this case, since the land was received as a gift, the adjusted basis is the same as Holly's original basis of $50,000. If the selling price is less than the adjusted basis, there is a recognized loss. If the selling price is more than the adjusted basis, there is a recognized gain. Let's calculate:

Selling Price = $32,000:

Rex's recognized gain = Selling price - Adjusted basis = $32,000 - $50,000 = - $18,000 (loss)

Selling Price = $70,000:

Rex's recognized gain = Selling price - Adjusted basis = $70,000 - $50,000 = $20,000

Selling Price = $45,000:

Rex's recognized gain = Selling price - Adjusted basis = $45,000 - $50,000 = - $5,000 (loss)