Question

Julio exchanged an old, small warehouse he owns and uses in his business for adjoining land...

Julio exchanged an old, small warehouse he owns and uses in his business for adjoining land that will be used as a parking lot for his business. Julio's basis in the warehouse is $40,000 and the FMV is $75,000. The FMV of the land is also $75,000.

a. What is Julio's realized gain on the warehouse?

b. what is Julio's realized gain on the warehouse?

c. What is Julio's new basis in the land he just acquired?

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Homework Answers

Answer #1

a. Calculation of Julio's Gain on the Warehouse (§1231 trade or business property)

FMV of Asset Received in Return = $75000

Basis in the Warehouse( Asset Exchanged) = $40000

Realized Gain (FMV - Basis) = $35000

b. Same as a. above( SAME QUESTION). Recognized gain would be NIL as no Cash Proceeds have been received and Realized Gain is deferred.

c. Julio's new Basis in the land just acquired would be $40000 same as of the current Asset FMV since there is No Recognized Gain. No taxable gain have been realized.

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