Question

Wayne Wyatt exchanges business land with an adjusted basis of $300,000 and a fair market value of $600,000 for Fred Forbes's office building, worth $500,000, and $100,000 cash. Fred had an adjusted basis of $350,000 in the building

A. What is Wayne's realized and recognized gain or loss and the basis in the office building?

B. What is Fred's realized and recognized gain or loss and the basis in the land?

C. Assume no cash was received by Wayne and the office building was worth $600,000. What is Wayne's realized and recognized gain or loss and the basis in the office building?

Answer 1

A.

Wayne has a realized gain of $300,000 and Recognised gain of $100,000 and basis in the office building is $300,000.

FMV of property received

($500,000+$100,000) $600,000

Less: Adjusted basis ($300,000)

Gain realised. $300,000

Gain Recognised. $100,000

Method 1

Basis of old asset. $300,000

(+) Gain recognised. $100,000

(-) boot received. ($100,000)

Basis of new asset   $300,000.

Method 2.

FMV of property recived $500,000

(-) Deferred gain. ($200,000)

Basis of new asset. $300,000.

B. Fred has a realized gain of $150,000 , no Recognised gain and a basis of $450,000 in land

FMV of property recived $600,000

(-) basis of property given up

350,000 and cash given up of 100,000. (450,000)

Gain realized. $150,000

Gain Recognised. $0

Method 1

Basis of old asset. $350,000

(+) Boot given. $100,000

Basis of new asset. $450,000

Method 2

FMV of new land. $600,000

(-) deffered gain. ($150,000)

Basis of new asset. $450,000

C.

​​​​​​Building worth $600,000

$350,000+$100,000

=$450,000

$600,000-$450,000 =$150,000 realised gain and gain Recognised is zero.

New basis is

$600,000- Deffered gain (150,000) =$450,000.

____×____

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