Question

Barb and Cat are sisters. In January, 20X5, Barb gave up land (cost $500,000) and got an office building (FMV $800,000; adjusted basis $700,000) from Cat. Barb sold the property received from Cat in June, 20X5 to a friend for $900,000. Which of the following statements is true with regard to these transactions?

1. Cat has no gain recognized in 20X5.

2. If Cat sells the land for $1,200,000 in 20X8, her gain would be $500,000 on the sale.

3. None of the answers provided is correct.

4. Barb’s gain recognized in 20X5 is $300,000.

5. Barb’s gain recognized on the June sale is $400,000.

Answer 1

True statements

If Cat sells the land for $1,200,000 in 20X8, her gain would be $500,000 on the sale.

Barb’s gain recognized on the June sale is $400,000.

Both of the above statement is true as the value of the property base $700000 In January, 20X5 and if cat would sell it for $1200000 20X8 her gain would be $1200000- $700000= $500000 on the sale

As the land that barb has gave up is of value  $500000 and when he sale that land he got in return from cat and sell to a friend in June 20X5 for $900000 value than Barb's gain recognised on the June sale is $ 400000.