Pat owns a 1965 Ford Mustang that he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Question

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Pat's recognized gain is $5,000 (the difference between the Mustang's current value of $27,000 and its purchase price of $22,000). His adjusted basis for the convertible would be $27,000, the value of the Triumph Spitfire convertible he received in the exchange.

Pat Owns a 1965 Ford Mustang That He Uses for Personal