Question

Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2017, she exchanges it with Lisa Martin (an unrelated party) for undeveloped land on the West Coast and $3,000 cash. Lisa has an adjusted basis of $72,000 for her land, and its fair market value is $89,000. As the real estate market on the East Coast is thriving, on September 1, 2018, Lisa sells the land she acquired for $120,000.

Complete the letter to Tanya advising her of the tax consequences of this exchange.

Hoffman, Young, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040

January 14, 2017

Ms. Tanya Fletcher The Corral El Paso, TX 79968

Dear Ms. Fletcher:

You asked about the tax consequences of the January 4, 2017 land exchange with Lisa Martin. Based on the data provided, the tax consequences are as follows:

Amount realized $___ Less: adjusted basis $___ Equals: realized gain $___ Recognized gain $___

Because the transaction_____ as a nontaxable like-kind exchange, only $_____ of your potential gain of $_____ is recognized. The adjusted basis for the land received is $_____.

If I can be of further assistance, please let me know.

Sincerely,

Margaret Adams, CPA Tax Partner

Answer 1

Amount realized	$_89000+$3000 = $92000__
Less: adjusted basis	=_$80000__
Equals: realized gain	=$12,000
Recognized gain	$ 3,000