Task: Explain how realized and recognized gain or loss for a personal-used asset is assessed.
Mike owns a car that he uses exclusively for personal purpose. Its original cost was $26,000, and the fair market value is $12,000. He exchanges the car and $18,000 cash for a new car.
a. Calculate his realized and recognized gain or loss.
b. Calculate his basis for the new car.
c. Determine when his holding period for the new car begins.