Question

1.  . In 2014, Penny exchanges an investment property in Santa Barbara with a mountain view for a lot with an ocean view in a qualifying like-kind exchange. Penny's basis in the land given up is $100,000 and the property has a fair market value of $250,000. Penny also pays $20,000 to the other party as part of the transaction. In exchange for her property and cash, Penny receives land with a fair market value of $270,000.

a. Calculate Penny's recognized gain, if any, on the exchange.

b. Calculate Penny's basis in the property received.

2. Robert acquired his rental property in November 2003 for $150,000 and sold it in October 2017 for $200,000. The accumulated straight-line depreciation on the property at the time of the sale was $20,000. Robert is in the 35 percent tax bracket for ordinary income. What amount of tax will Robert pay related to this gain?

Answer 1

1

a

penny not received any boot on the exchange. Thus, recognized gain is $0.

b

basis in the property received is basis in the land given up plus cash given. Thus, basis = 100,000 + 20,000 = 120,000

2

In this case sale of rental property provides taxpayer with long-term capital gain.

Realized gain = 200,000 – 150,000 = 50,000

Of the total gain, gain to the extent of depreciation taken is taxable at a maximum rate of 25%. And the balance gain is taxable at 15% as taxpayer is in 35% ordinary tax bracket.

Tax on total gain = 20,000 * 25% + 30,000 * 15% = 9,500