A taxpayer exchanged a business truck (Adjusted Basis $10,000, FMV $15,000) for another business truck (FMV $15,000). The exchange occurred in the current year. What is the recognized gain on this transaction?

Answer options:

$2,500

$5,000

$15,000

How to approach this question

Apply TCJA rule: Like-kind exchange (Section 1031) applies ONLY to real property. Personal property exchanges are taxable.

Full Answer

C.$5,000✓ Correct

Under the TCJA, Section 1031 like-kind exchange treatment is limited to REAL PROPERTY. Exchanges of personal property (like vehicles, equipment) trigger gain recognition. Realized Gain = FMV Received ($15,000) - Adjusted Basis ($10,000) = $5,000. Since §1031 does not apply, the full $5,000 is recognized.

Common mistakes

Applying old like-kind exchange rules to vehicles.

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