Question

Mario transfers real estate with an adjusted basis of $140,000 for similar real estate with a fair market value of $160,000. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $___. The recognized gain was $___. Mario;s adjusted basis in the real estate received is $___.

Answer 1

As per publication 544 sales and other dispostions of assets of IRS , if there is like - kind exchange of property then on 2 conditions then profit is non taxable if its qualified property or like kind property .

no profit or loss will be recognized if like - kind property is used for investment purpose or business purpose , if used of personal purpose then gain or loss is taxable .

Mario transfers like kind exchange , so the recognized gain on property will be zero $ as per IRS 544 publication but this has to be reported in form 8824.

As adjusted basis is $ 140000

and property which is exchanged has FMV = $160000

so realized gain = 160000-140000

= $20000

but this realized gain will not be recorded as it will be deffered for time when the like kind property is sold

till the time Realized gain will be added to the adjusted basis of old property which is $ 140000

so now new Adjusted basis of property will be = AB of old + Realized gain

= 140000+20000

= $160000

so Answer are

Realized gain= $20000

Recognised gain = $0

Mario new Adjusted BAsis = $160000