Camilo's property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken.

a. What is Camilo's realized and recognized gain?

b. What is the basis of the replacement property

The correct answer for (a) is $25,000 and $0 and for option (b) is $155,000.

Explanation:

According to the scenario, the computation of the given data are as follows:

Adjusted basis = $155,000

Fair market value = $180,000

(a). Realized gain = Fair market value - Adjusted basis

= $180,000 - $155,000

= $25,000

As, fair market value is more than the adjusted basis, so there will be no recognized gain.

So, Recognized gain = $0

(b). We can calculate the basis of the replacement by using following formula:

Basis = Market value - Realized gain

= $180,000 - $25,000

= $155,000