Jackie Jones owns a personal use boat that has a fair market value of $36,000 an

Question

Jackie Jones owns a personal use boat that has a fair market value of $36,000 and an adjusted basis of $46,000. Jackie’s adjusted gross income (AGI) is $102,000. Calculate the realized and recognized gain or loss if:

a: Jackie sells the boat for $36,000

b: Jackie exchanges the boat for another boat that is worth $36,000

c: The boat is stolen and Jackie receives insurance proceeds of $36,000from State Farm Insurance

d: Would your answer in (a) above change if the fair market value and the selling price were $48,000?

Explanation / Answer

A realized loss from sale, exchange of personal use assets is not recognized for tax pupose. Any gain realized from sale or exchange of personal asset is fully taxable. An exception exist for causalty or theft losses of personal assets.

FMV= $36000 Adjusted basis=$46000

a) sale proceeds: $36000

Adjusted basis=($46000)

Realized Loss: ($10000)

Recognized: 0 as realized loss is not recognized for the asset which is of personal use

b) Exchange: $36000

Adjusted basis=($46000)

Realized Loss: ($10000)

Recognized: 0 as realized loss is not recognized for the asset which is of personal use

c) Insurance proceeds: $36000

Adjusted basis=($46000)

Realized Loss: ($10000)

Recognized: ($10000) as it is exception to the general rule as the bost was stolen.

d) Sale Proceeds: $48000

Adjusted basis=($46000)

Realized and recognized gain $20000

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