Answer:
1. Recognized gain = $54300
2. Realized gain = $45228
3. Adjusted basis of new asset = $150,000
Explanation:
The adjusted basis is the net cost of an asset after it has had depreciation deductions and/or capital expenditure increments. In other words, its actual worth at that particular point in time.
The amount realized is the fair market value and the sum of any money received at the sale of an asset.
1. A recognized gain or loss is the difference between the amount realized from the sale of the asset and the asset's adjusted basis on the time of its sale. A positive figure proves to be a gain and a negative figure proves to be a loss. In other words, when an asset is sold for a price higher than what it is actually worth at the time of sale, it is a recognized gain whilst if it is sold for a price lower than what its net cost is, it is a recognized loss.
In the current scenario:
The amount realized from the sale of the asset is $151,200.
Adjusted basis = Cost basis + capital improvements
Hence, $86,750 + $10,150 = $96900
Recognized gain/loss = $151,200 - $96900 = $54300
Due to the fact that it is a positive figure, i.e. amount realized at sale of asset is higher than the adjusted basis, it is a recognized gain.
2. A realized gain is the amount of <em>actual money</em> earned at sale. It does not simply look at the income from sale, but also takes into account any expenses that were present at the time of sale and deducts these.
In this case, there was an expense of the sale of $9072.
Hence, amount realized from sale of asset is $151200 - $9072 = $142128
Realized gain = $142128 - $96900 = $45228
3. Adjusted basis of new residence
The new residence has not had any capital increments. Hence, the adjusted basis is the same as the cost i.e. $150,000.
