Question

Sammy exchanges land used in his business in a like-kind exchange. The property exchanged

is as follows:

Property Surrendered Adj. Basis

FMV Land

$ 44,000 $ 60,000 Cash Liability on land $ 12,000 $ 12,000 The other party assumes the liability.

Property Received Adj. Basis FMV $ 50,000 $ 43,000 $ 5,000 $ 5,000

a. What is Sammy's recognized gain or loss? b. What is Sammy's basis for the assets he received?

Answer 1

a) What is Sammy's recognized gain or loss

Amount realised

Particular	Amount
Property received	$43,000
Cash received	$5000
Liability assumed by other	$12,000
Total (a)	$60,000
Adjusted basis value of land (b)	$44,000
Realised gain (a-b)	$16,000

Recognized gain is lower of cash received plus liability assumed by other (i.e $5000+$12,000=$17,000) and realised gain i.e $16,000. So the recognised gain will be $16,000

b) Sammy basis for the assets he received

Particular	Amount
Cash received	$5,000
Liability assumed by other	$12,000
total (A)	$17,000
Adjusted basis for the asset given up (B)	$44,000
Recognised gain(C) as per answer in part a	$16,000
Total (B+C-A)	$43,000

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