Jake exchanges an airplane used in his business for a smaller airplane also to be used in his business. His adjusted basis for the airplane is $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition,
Jake receives cash of $10,000. Calculate Jake’s realized and recognized gain or loss and his adjusted basis for the assets received.
What will be an ideal response?
?
| Amount realized ($300,000 + $10,000) | $310,000 |
| Adjusted basis | (325,000) |
| Realized loss | ($ 15,000) |
| Recognized loss | ($15,000) |
| An airplane is not qualifying property (i.e., real property), so Section 1031 does not apply. Thus, the realized loss of $15,000 is recognized. |
| Jake's basis for the airplane is $300,000. His basis for the cash is $10,000. |
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What will be an ideal response?