Final answer:
Tiana recognizes a gain of $16,000 from her like-kind property exchange because she received $16,000 in cash in addition to the replacement property. Therefore correct option is C
Step-by-step explanation:
To determine how much gain Tiana recognizes as a result of the sale, we need to consider the principles of like-kind exchanges under U.S. tax law, specifically Section 1031 of the Internal Revenue Code. A like-kind exchange allows an investor to defer capital gains taxes on the exchange of properties of similar kind and use. In Tiana's case, she exchanged her property with an FMV (Fair Market Value) of $66,000 and an adjusted basis of $45,000 for another property priced at $50,000 plus $16,000 in cash.
Under these conditions, Tiana's gain is calculated as follows:
- Amount realized from the exchange: $50,000 (FMV of the new property) + $16,000 (cash received) = $66,000
- Total gain on the exchange: $66,000 (amount realized) - $45,000 (adjusted basis) = $21,000
- However, because Tiana received cash in addition to the replacement property, the cash received ($16,000) would trigger a recognition of gain up to the amount of the cash.
Therefore, the correct answer is c. $16,000, which is the amount of gain Tiana recognizes due to receipt of the cash.