Question

Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2016, Owen and Lisa exchange business pickup trucks. Lisa gives up a blue pickup truck with an adjusted basis of $2,000 and a fair market value of $6,000. In return for this property, Lisa receives from Owen a red pickup truck with a fair market value of $5,500 and cash of $500. Owen’s adjusted basis in the truck he exchanges is $2,500. In March 2017, Owen sells the blue pickup truck to a third party for $5,800.

Locate and review Publication 544, Nontaxable Exchanges. Please explain and calculate the amount of Owen and Lisa’s gain recognition for 2016. Also determine the effect, if any, of the subsequent sale in 2017.

Lisa Sizemore, a taxpayer in the 10 percent tax bracket, purchased stock as an investment on July 11, 2015. She sold the stock on July 9, 2016, 3 days before qualifying for the long-term holding period. If Lisa had waited until July 12, 2016 to sell the stock, she would have qualified for the 0 percent capital gains tax rate. Instead, the sale will now be taxed at ordinary income rates. Upon realizing this, Lisa has told you that she will “fudge” the sale date to July 12. She says to you, “What’s the big deal? It’s just 3 days.” What would you say to Lisa?

Answer 1

Answer:

But,on subsequent sale,owen has to recognise gain/loss as follows

Adjusted basis for owen=Adjusted basis of pickup truck given up+Money paid in the like-kind exchange

Adjusted basis for owen=$2500+$500=$3000

Money realised=$5800

Gain to owen=Money realised-Adjusted basis=$5800-$3000=$2800

Here there is no loss or gain owen and lisa.
Because of exchange is a Non-taxable exchange since it is a like-kind exchange and
Pickup truck is a qualifying asset.

here owen ha to recognise gain or loss as follows because its subsequent sale.

Adjusted basis for owen

=$2500+$500=$3000

Money realised
=$5800

Gain to owen
= Money realised-Adjusted basis
= $5800 - $3000
= $2800