ExpertHard1 markMultiple Choice
CPA · Question 38 · Area III: Property Transactions
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?
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:
A.
$0
B.
$2,500
C.
$5,000
D.
$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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