Question

Exercise 14-37 (Algorithmic) (LO. 11)

In a § 1031 like-kind exchange, Rafael exchanges a business building that originally cost $228,000. On the date of the exchange, the building given up has an adjusted basis of $91,200 and a fair market value of $125,400. Rafael pays $18,810 and receives a building with a fair market value of $144,210.

Compute the following. If an amount is zero, enter "0".

a. Rafael's realized gain on the exchange is $ ............

b. Rafael's recognized § 1031 gain is $..............

c. Rafael's unrecaptured § 1250 gain of $---------- is carried over to the replacement property .

Answer 1

Requirement a: Compute realized gain on exchange as follows

Particulars	Amount
Fair market value of building	$125,400
Deduct: Adjusted basis of building	$91,200
Realized gain on the exchange	$34,200

Requirement b: Compute recognized § 1031 gain as follows

Particulars	Amount
Recognized § 1031 gain	$0

Note: There is no recognized gain as the taxpayer has not received any cash (boot) in the above exchange

Requirement c: Compute  unrecaptured § 1250 gain as follows

Particulars	Amount
Cost of building	$228,000
Deduct: Adjusted basis	$91,200
Unrecaptured § 1250 gain	$136,800