Question

Eric exchanges farmland with an adjusted basis of $64,000 for a new acre of farmland with...

Eric exchanges farmland with an adjusted basis of $64,000 for a new acre of farmland with a $100,000 fair market value. In addition, he receives $20,000 of marketable securities.

a.   What is the amount of gain realized by Eric?

b.   What is the amount of gain recognized by Eric?

c.    What is Eric's basis in the new farmland?

d.   What is Eric's basis in the marketable securities?

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Answer #1

a. Amount of gain realized = FMV of new farmland + FMV of securities received - Adjusted basis of farmland transferrd

= 100,000+20,000-64,000=56,000

b. Amount of gain recognized = Amount of realized gain or Value of securities received [ boot ] which ever is less

= 56,000 or 20,000 WEL = 20,000

c. Amount of basis in new farmland = Basis of farmland exchanged + Value of securities received - Amount of gain recognized

= 64,000 + 20,000 - 20,000 = 64,000

d. Basis in marketable securities = FMV of securities = 20,000

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