 Hello and welcome to the session in which we would look at this five independent situation and we need to determine the realized gain and loss and the recognized gain and loss. And each of these situations is independent from the other starting with the first one. Kelly sold her personal vacation cabinet with an adjusted basis of 60,473. Well, let's first take a look at the realized. Realized is what we received amount realized minus the adjusted basis equal to 13,000. Well, is this amount recognized? And the answer is yes, this is a personal vacation, not personal residence. Therefore, the 13,000 is recognized. It means it's taxable. Kelly sold her personal residence with an adjusted basis of 150 for 100,000. Well, I guess this is during the financial crisis. The amount realized is 100,000. The basis is 150. Under those circumstances, Kelly would recognize with incur a loss of 50. Is this loss recognized? And the answer is no. Personal residence is a personal use asset. Therefore, it's not recognized. The amount recognized is zero. Although the realized is 50,000, we can't use it. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. Kelly's personal residence was condemned by the state. It has an adjusted basis of 80. Kelly received 71. So Kelly received 71. Adjusted basis is 80. So there is a loss on the personal residence of 9,000. That's the realized. Is it recognized? And the answer is yes. Hold on a second. Didn't you just say that the realized loss on a personal residence is not recognized? Yes, I said that, but in this situation it was condemned by the state. This is an involuntary conversion. Unvoluntary conversion, the entire loss is recognized. Kelly had purchased land five years ago for 400,000. At the end of the current year, the land has a fair value of 5, 10. Well, that's great. Nothing really happened. There's an unrealized gain. This is unrealized of 110. Kelly did not sell. So there is nothing to recognize. It's called an unrealized gain from a technical perspective. Now, for financial accounting, for dealing with a cruel accounting, realized gain might be recorded, but this is for tax. Unrealized gain is not taxable, as well as unrealized loss for that matter. Kelly's personal car with an adjusted basis of 15,000 was stolen. She received insurance proceeds of 17,000 and used them to rent a vacation home for three months. Well, let's start with the realized. Received 17, adjusted basis 15, we have a realized loss, I'm sorry, realized gain of 2,000. Well, the property was involuntarily taken from her, which is stolen. That's a theft involuntary conversion, but not involuntary conversion, basically. But did she replace the asset? And the answer is no. Therefore, because the insurance proceeds were not used to buy a replacement car, the recognized gain is 2,000. What should you do now? Go to far hat lectures, whether you are a CPA candidate, EA candidate or student studying for the CPA exam, look at additional MCQs, look at additional true false questions that's going to help you understand this topic. This is a comprehensive example. In this example, I dealt with realized gain on personal residence, realized loss on personal residence, realized gain or realized loss on condemned by the state or involuntary conversion. So notice there are different scenarios here and all these scenarios were covered, each one of them in a separate recording. So this is basically a comprehensive example. You need to understand that the third gain, the third losses. And when it's this allowed gain and this allowed losses, it's a very important topic on the CPA exam, as well as the enrolled agent. Good luck, study hard, and of course, stay safe.