Question

2019-Carey exchanges land for other land in a qualifying like-kind exchange. Carey's basis in the land given up is $115,000, and the property has a fair market value of $150,000. In exchange for her property, Carey receives land with a fair market value of $100,000 and cash of $10,000. In addition, the other party to the exchange assumes a mortgage loan on Carey's property of $40,000.

a.Calculate Carey's recognized gain, if any, on the exchange__________

Feedback Although a taxpayer realizes a gain or loss on the sale or exchange of property, the recognition of the gain or loss may be deferred for tax purposes. One example of such a situation arises when a taxpayer exchanges real property for other real property of a like kind. To qualify as a nontaxable exchange, the property exchanged must be real property held for productive use in a trade or business or for investment.

b. Calculate Carey's basis in the property received._________

Answer 1

a)

Calculation of Carey's recognized gain on the exchange:

Particulars	Amount
Fair market value of property received	100,000
Cash received	10,000
Liability assumed by other party	40,000
Total amount realized	150,000
less: The adjusted basis of property given up	115,000
Gain realized	35,000

Calculation of boot received:

Details	Amount
Cash received	10,000
Liability assumed by other party	40,000
Total boot received	50,000

Gain echange to be recognized as the gain realized of 35,000 because it is less than the total boot received.

b)

Calculation of Carey's basis in the property received:

Particulars	Amount
Basis of property given up	115,000
Add: Boot paid	-
Less: Boot received	50,000
Add: gain realized	35,000
Basis of property received	100,000