Asked by Roberta Velescu on Jul 02, 2024
Verified
The City of Greenville condemned 300 acres of Kayla's farmland.Kayla's land was worth $250,000 and her basis was $62,500.In payment to Kayla,the city gave Kayla 500 acres of similar land.An appraisal indicated that the land Kayla received was worth $265,000.What is Kayla's recognized gain or loss on the involuntary conversion and what is her basis in the land received?
A) $0 gain and $62,500 basis.
B) $0 gain and $262,500 basis.
C) $15,000 gain and $265,000 basis.
D) $202,500 gain and $265,000 basis.
Involuntary Conversion
An event where property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the owner receives other property or compensation in replacement.
Recognized Gain
The portion of gain considered for tax purposes when an asset is sold or disposed of, which may differ from the actual profit realized.
Basis
The initial value of an asset for tax purposes, used to determine gain or loss on sale or disposition.
- Understand how to calculate recognized gain or loss and new basis in property received in exchanges or by involuntary conversion.
Verified Answer
AM
Antonio Monetti6 days ago
Final Answer :
A
Explanation :
Kayla does not recognize any gain because the transaction is an involuntary conversion of property, where the property received is similar or related in service or use to the property converted. Her basis in the new land is the same as her basis in the old land, $62,500, because she did not recognize any gain.
Learning Objectives
- Understand how to calculate recognized gain or loss and new basis in property received in exchanges or by involuntary conversion.