Sam exchanges real estate for other real estate in a qualifying like-kind exchange. Sam’s basis in the real estate given up is $120,000, and the property has a fair market value of $165,000. In exchange for his property, Sam receives real estate with a fair market value of $100,000 and cash of $15,000. In addition, the other party to the exchange assumes a mortgage loan on Sam’s property of $50,000.
What is Sam's recognized gain, if any, on the exchange?
What is Sam’s basis in the property received?
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Solution:
1). What is Sam's recognized gain, if any, on the exchange?
Calculating gain realized:
| Details | Amount($) |
| Property fair value | $100,000 |
| Liability assumed by other party | $50,000 |
| Received cash | $15,000 |
| Total realized amount | $165,000 |
| Less: The adjusted basis of the property | ($120,000) |
| Realized Gain | $45,000 |
Calculating boot received:
| Details | Amount($) |
| Liability assumed by other party | $50,000 |
| Received cash | $15,000 |
| Total Boot received | $65,000 |
Thus, Sam's recognized gain on exchange is = $45,000. Because it is less than the total boot received.
2). What is Sam’s basis in the property received?
| Details | Amount($) |
| Basis of he property given up | $120,000 |
| Less: Boot received | $65,000 |
| Add: Gain realized | $45,00 |
| Basis of the property received | $100,000 |
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