Question

Herman exchanges his apartment complex for Heidi’s farm, and the exchange qualifies as a like-kind exchange....

Herman exchanges his apartment complex for Heidi’s farm, and the exchange qualifies as a like-kind exchange. Herman’s adjusted basis for the apartment complex is $600,000 and the complex is subject to a $180,000 liability. The fair market value of Heidi’s farm is $770,000, and the farm is subject to a $100,000 liability. How much, if any, is Herman’s recognized gain and his basis in the farm?

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Answer #1

COMPUTATION OF HERMAN GAIN OR LOSS :

PARTICULARS AMOUNT AMOUNT
fair market value of farm received 770000
appartment complex debt relief 180000
VALUE OF HERMAN GETTING (working note 1) 950000
VALUE OF HERMAN GIVING UP :
adjusted basis of the apartment complex 600000
liability raised towards the exchange 100000
VALUE OF HERMAN GIVING UP (working note 2) (700000)
GAIN REALISED (working note 3) 250000

WORKING NOTE 1 :

VALUE OF HUMAN GETTING = Fair value of firm received + Appartment complex debt relief

= 770000 + 180000

= 950000

WORKING NOTE 2 :

VALUE OF HEMAN GIVING UP = Adjusted basis of appartment complex + liability raised

towards exchange

= 600000 + 100000

= 700000

WORKING NOTE 3 :

GAIN RAISED = Value of herman getting - Value of herman giving up

  = 950000 - 700000

= 250000

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