Question

Fred exchanges a piece of business land (FMV 90,000; adjusted basis $50,000) and cash $1,000 for another piece of business land (FMV 70,000; adjusted basis $30,000) and $10,000 cash. a. What is Fred’s realized gain/loss on the transaction?

b. What is Fred’s recognized gain/loss on the transaction?

c. What is Fred’s basis in the new land (land received)?

Answer 1

a)
Realised gains= FMV of property received - Adjusted basis of property given up
= 70,000 - 50,000 -1000
= 19,000

b)
Recognised gain= Lesser of realised gain or boot received

Recognised gain = 10,000

c)
Adjusted Basis of new land = Adjusted basis of property given up + boot paid - boot received + gain recognised
= 51,000 - 10,000 + 10,000
= 51,000