Question

Latisha owns a warehouse with an adjusted basis of 300,000. She exchanges it for strip mall building worth 500,000. what are the income tax consequences to Latisha as result of the exchange?

Answer 1

Subject - Like-kind exchange type.

There are 2 consequences from an Income tax depending on the below 2 points -

1. If the warehouse was used by Latisha for her business purpose by storing inventory and other business-related goods and the current exchange for strip mall building is also used for business purpose (renting etc.,) then she will not recognize any gain and will be $0 and her basis for the exchanged item strip mall building will be $300,000.

2. If Latisha used the warehouse for her personal purpose by storing personal belongings and the exchanged item strip mall building is used for renting purposes (business) then her recognized gain will be $200,000 ($500,000-300,000) and her basis to the strip mall building will be $500,000.