[Rose]

I don’t understand this, this is from CPA Ninja MCQ

Patty Cake owned real estate that was condemned by the state. Patty had purchased the property for $30,000 and received $50,000 from the state as a result of the condemnation. Patty purchased replacement real estate for $52,000. Patty’s basis in the new real estate is:

a. 30,000

b. 32,000

c. 50,000

d. 52,000

Answer is b, 32,000 (52,000 – 20,000)

Why not c, 50,000? (52,000 – 2,000 gain not recognized) ????

[leglock]

Ur old basis was 30 and u got 50 for it so ur gain realized is 20 that will b deferred bc ur new purchase was more than the 50 u recd. so ur new purchase is 52 less 20 deferred yields new basis of 32 and gain recognized of zero

Had the new property u bought been 48, ur gain realized would have been 20 (50 – 30) but u only spent 48 so recognize gain of 2 and defer 18 so basis of new would b 30 (48 – 18)

[Author]

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