Pat owns a 1965 Mustang car which 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

Quizplus · Accepted Answer

Pat's recognized gain is $5,000, which is the difference between the current value of the Mustang ($27,000) and its purchase price ($22,000). His adjusted basis for the convertible is $27,000, the fair market value of the car received.

Pat Owns a 1965 Mustang Car Which He Uses for Personal