Answer:
According to Section 1031 of Internal Revenue Code, an exchange of like-kind property is referred to as like-kind exchange, if the exchange meets the following criteria:
- The property should be exchanged only for the 'like-kind' (same class) property.
- The 'like-kind' property that is in exchange should be either used in operations of business or held for investment purposes.
- The exchange should be done under specific timing restrictions or requirements (for indirect exchanges through third parties).
Step-by-step explanation:
A) Explanation: Since both the properties in exchange are real properties which are used in business, this is a like-kind exchange
B)
Description Amount ($)
Fair market value of bowling alley 120,000
Add: Mortgage value L is relieved off <u> 40,000
</u>
Amount realized 160,000
Less: Adjusted basis <u> (175:000)
</u>
<u>Realized loss by L (15,000)
</u>
C) Explanation: Since the loss realized is due to exchange, the loss is not recognized.
D) Explanation: Since the loss is not recognized, the character of gain or loss could not be
E) Explanation: The total of realized loss, $15,000 (From Requirement (b)) is deferred.
F) Determine the basis of property acquired in exchange, bowling alley.
Description Amount ($)
Fair market value of bowling alley 120,000
Add: Deferred loss <u> 15,000
</u>
<u>Basis of bowling alley 135,000
</u>
