How to Calculate Recognized Gain or Loss on the Sale of a Car
What is Julia's recognized gain or loss on the sale of the car?
Julia sells the car for $30,000. How much recognized gain or loss does she have? What if she sold the car for $13,000 or $16,000?
Answer:
1. If Julia sells the car for $30,000, she will have a recognized gain of $13,000.
2. If Julia sells the car for $13,000, she will have a recognized loss of $4,000.
3. If Julia sells the car for $16,000, she will have a recognized loss of $1,000.
To calculate Julia's recognized gain or loss on the sale of the car, we need to determine the adjusted basis of the car and then compare it to the selling price. The adjusted basis is the original cost plus any improvements made.
- Harold purchased the car for $12,000 in 2015.
- The fair market value of the car at the time it was given to Julia in 2021 was $10,000.
- Julia completed some restoration work with out-of-pocket costs of $5,000.
- Julia sold the car for different prices: $30,000, $13,000, and $16,000.
1. Julia sells the car for $30,000:
Adjusted Basis = Original Cost + Improvements
Adjusted Basis = $12,000 + $5,000
Adjusted Basis = $17,000
Recognized Gain or Loss = Selling Price - Adjusted Basis
Recognized Gain or Loss = $30,000 - $17,000
Recognized Gain = $13,000
2. Julia sells the car for $13,000:
Adjusted Basis = $17,000
Recognized Gain or Loss = $13,000 - $17,000
Recognized Loss = -$4,000
3. Julia sells the car for $16,000:
Adjusted Basis = $17,000
Recognized Gain or Loss = $16,000 - $17,000
Recognized Loss = -$1,000
So, the correct answers are:
1. If Julia sells the car for $30,000, she will have a recognized gain of $13,000.
2. If Julia sells the car for $13,000, she will have a recognized loss of $4,000.
3. If Julia sells the car for $16,000, she will have a recognized loss of $1,000.