Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which has a basis of $10,000, Grant pays $10,000 cash. The new oven is valued at $22,000. What is Grant's recognized gain or loss due on this transaction?
A)$- 0 -
B)$2,000
C)$12,000
D)$16,000
E)$22,000

Question

Quizplus · Accepted Answer

The recognized gain or loss is equal to the amount realized from the exchange minus the adjusted basis of the old oven. The amount realized is $22,000 (new oven) plus $10,000 (cash), which equals $32,000. The adjusted basis of the old oven is $10,000. Therefore, the recognized gain is $32,000 - $10,000 = $22,000. However, because Grant exchanged the old oven for a new oven, he can defer recognizing the gain under the like-kind exchange rules. Therefore, the recognized gain is only the amount of cash paid, which is $10,000, resulting in a recognized loss of $0. Answer choice A is incorrect because there is a recognized loss of $0. Answer choice C, D, and E are incorrect because they all assume that the recognized gain is $22,000, which is incorrect because of the like-kind exchange rules.

Grant Exchanges an Old Pizza Oven from His Business for a New