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Horace sells equipment with an adjusted basis of $20,000 to his great-grandson, Matthew, for its fair market value of $15,000. Matthew sells the equipment to an unrelated party for $17,000. What are Matthew’s realized and recognized gains (losses) upon the sale?

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Answer:

The recognized gains upon the sale is $2000.

Explanation:

As the cost of purchase of the equipment to Mathew is $15000 and the sale proceeds received is $17000. The gain is actually calculated as follows;

Gain = Sale proceeds –Cost of equipment  

Gain = Matthew sells the equipment to an unrelated party for $17,000 – Matthew bought equipment for its fair market value of $15,000

Which is $1700 -$1500 = $2000

Therefore the recognized gains upon the sale is $2000.  

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