Question

Mario transferred real estate with an adjusted basis of $140,000 for similar real estate with a fair market value of $160,000. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $_____1 of 3. The recognized gain on the exchange was $______2 of 3. Mario's adjusted basis in the real estate received is $_____3 of 3.

Answer 1

Answer:1.) $20,000 ; 2) $0 ; 3) $160,000

Explanation:

Adjusted basis transferred = $140,000

Fair market value = $160,000

Exchange is classed as a like-kind exchange.

The realized gain in exchange occurs when a property is sold for a higher price than it was purchased.

Here, the realized gain in the exchange is the difference between the value of the like-kind exchange made :

$160,000 - $140,000 = $20,000

The recognized gain may be referred to as the taxable portion of the realized gain, however, for like kind exchanges involving is tax-free.

Therefore recognized gain = $0

Adjusted basis in the real estate received :

Adjusted basis of old property + realized gain

$140,000 + $20,000 = $160,000