Which of the following statements is correct?
A) In a nontaxable exchange in which gain is realized, the transaction results in a permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
B) In a nontaxable exchange in which loss is realized, the transaction results in a permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
C) In a tax-free transaction in which gain is realized, the transaction results in the permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

In a tax-free transaction in which gain is realized, the transaction results in the permanent recovery of more than the taxpayer's cost or other basis for tax purposes. This is because the basis for the property received in the nontaxable exchange will be equal to the basis of the property exchanged plus any cash paid or received, but no gain will be recognized for tax purposes. The other statements are incorrect as they refer to nontaxable exchanges resulting in permanent recovery of more or less than the taxpayer's basis, which is not necessarily the case.

Which of the Following Statements Is Correct