Question

Kase, an individual, purchased some property in Potomac, Maryland, for $228,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland property. Kase agrees to the exchange.

What is Kase’s realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios? (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. The transaction qualifies as a like-kind exchange and the fair market value of each property is $770,000.

b. The transaction qualifies as a like-kind exchange and the fair market value of each property is $184,000.

Answer 1

Cost of Purchase of Land,Maryland=$228,000

case a)The transaction qualifies as a like-kind exchange and the fair market value of each property is $770,000

   In this case a land bought for 228,000 is now exchanged with another land in North Carolina. And for that purpose Kase's land is valued at $770,000. A increase in fair value(Market Value) a gain is to be Recognised.

Market Value=770,000

Cost when bought=(228,000)

Gain/(loss) :542,000 gain

(As land Has no depreciation the Book value after 10 or any year wouldn't depreciated only ReEvaluation increases or decreases Value)

b. The transaction qualifies as a like-kind exchange and the fair market value of each property is $184,000.

Apply the same scenario as above but here fair value decreased as compared to cost of purchase.

Market Value=184,000

Cost when bought=(228,000)

Gain/(loss)   :(-44,000) Loss