1. Please explain the distinction between a "realized" gain and a "recognized" gain.
Recognized gain is when the IRS considers a profit earned from the sale of an asset. A recognized gain only considers the difference between the basis of the asset and the sale price. Whereas, realized gain refer to the amount of money you actually earned in the sale of an asset.
2. Are there any limits to the deductibility of losses on sales and exchanges between related parties? What code section defines this limitation?
3. What is the basis of property received (i.e. new property) in a like-kind exchange? What is the holding period for the new asset?
To calculate the basis of the new property, you must start with the fair market value of the like-kind property received. Any deferred gain is subtracted and deferred losses are added.The holding period for property acquired in a nontaxable exchange includes the holding period of the property given in exchange if the property was a capital asset or property used in a taxpayer's trade or business.
4. David purchased stock in Zoll Corporation in 1985 for $6,000. On April 16, 2013 he gifted the stock to his daughter Susan; at the time of the gift, the Zoll stock was valued at $250,000. Susan sold the stock the next month for $252,000. What is Susan's gain or loss and what is the character of the gain or loss?
Susan would have a long term capital gain of $246,000
$252,000-6000= 246,000
The period that David held the stock would be included in Susan's holding period.