Tom Gow owned a parcel of investment real estate that had an adjusted basis of $25,000 and a fair market value of $40,000. Gow exchanged his investment real estate for the item of property listed below.

Land to be held for investment (FMV) $35,000

A small sailboat to be held for 3,000

personal use (FMV)

Cash 2,000

What is Tom Gow's recognized gain and basis in his new investment real estate?

Gain recognized Basis for real estate

A. $2,000 $22,000

B. $2,000 $25,000

C. $5,000 $25,000

D. $5,000 $35,000

Please show work and explain