Juan owned a small rental property, which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?
A)$5,000
B)$10,000
C)$30,000
D)$35,000

Question

Quizplus · Accepted Answer

Juan's recognized gain is $5,000 because he reinvested the entire $75,000 compensation in a similar property, which is less than the compensation received. The recognized gain is the difference between the compensation received ($75,000) and the cost of the new property ($70,000).

Juan Owned a Small Rental Property, Which Was Condemned by the County