Question

Stephanie owns land (adjusted basis of $90,000; fair ma阳value of $125,000) 』－ that she uses in her business. She exchanges it for another parcel of land (worth $100,000) and stock (worth $25,000). Determine Stephanie's: a. Realized and recognized gain or loss on the exchange. b. Basis in the new land. c. Basis in the stock she received. g

Answer 1

Answer: A. $25,000 B. $90,000 C. $25,000

Explanation:

A.

Land                                       $100,000

Stock                                         25,000

Amount realized                    125,000

Less: Adjusted basis              (90000)

Recognized gain                   $35,000

When you receive book in an exchange which is similar or like kind, then the recognized gain is the lesser of either the boot or recognized gain. Here the lesser is the boot received which is $25,000. Therefore, recognized gain is $25,000

B.

Because the recognized gain is taken as $25,000 rather than $35,000. The $10,000 amount is considered as postponed gain. Hence,

$100,000 (land worth) - $10,000 (postponed gain) = $90,000 - basis of new land.

C.

The worth of the stock is the basis in the stock received. Which is $25,000