Quadrant,Inc. ,is a former C corporation whose first S corporation year began on January 1,2010.At that time,Quadrant had two assets: X,with a value of $1,000 and a basis of $400;and Y,with a value of $400 and a basis of $600.The net unrealized built-in gain as of January 1,2010,is $400 (i.e. ,X's $600 gain less Y's $200 loss).Asset X is sold for $1,200 during 2010,and asset Y is retained.The recognized built-in gain in 2010 is:

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The recognized built-in gain is the net unrealized built-in gain at the time of the S corporation election, which is $400. Asset X's gain of $600 is reduced by Asset Y's loss of $200, resulting in a net gain of $400.