CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsEasy
A client, Mr. Chen, sells stock for $20,000 that he purchased for $15,000 two years ago. He incurred $500 in brokerage fees when selling the stock. What is the amount realized on the sale?
- A$4,500
- B$20,000
- C$19,500
- D$5,000
Show answer & explanationAnswer & explanation
Correct answer: C. $19,500
The amount realized from the sale of property is the selling price minus any selling expenses, such as brokerage fees. So, $20,000 (selling price) - $500 (brokerage fees) = $19,500.
Why the other options are wrong
- A. This option is the net gain, not the amount realized.
- B. This option incorrectly includes selling expenses in the amount realized.
- D. This option is the gross gain, not the amount realized.
Amount Realized
The amount realized from the disposition of property is the sum of any money received plus the fair market value of any other property received, reduced by selling expenses.
- Selling price is the starting point.
- Selling expenses reduce the amount realized.
- Used to calculate realized gain or loss.
Memory trick: Amount Realized: 'Price Minus Selling Fees, That's What You See.'