Question

What is the basis of the new property in each of the following situations? What is the recognized gain or loss?

1. Rental house with an adjusted basis of $89,000 exchanged for a personal-use river cottage with an FMV of $113,500.
2. General Motors common stock with an adjusted basis of $19,500 exchanged for Quaker Oats common stock with an FMV of $15,750.
3. Land and building with an adjusted basis of $18,900 used as a furniture repair shop exchanged for land and a building with an FMV of $43,600 used as a car dealership.
4. An office building with an adjusted basis of $21,200 exchanged for a heavy-duty truck with an FMV of $25,400. Both properties are held for 100% business purposes.
5. A residential rental property held for investment with an adjusted basis of $232,000 exchanged for a warehouse to be held for investment with an FMV of $191,900.

(For all requirements, if no gain or loss is recognized, select "No gain/loss".)

Answer 1

( 1 ) -- Rental house with an adjusted basis of $89000 exchanged for a personal-use river cottage with an FMV of $113500.

Answer -

If the river cottage is not rented, the transaction does not qualify as a like-kind exchange.

Basis of the new property = $113500 (FMV).

Recognized gain = $24500 ($113500-$89000).

.

( 2 ) -- General Motors common stock with an adjusted basis of $19500 exchanged for Quaker Oats common stock with an FMV of $15750.

Answer -

Stock exchanges do not qualify for like-kind treatment.

Basis of the new stock = $15750 (FMV).

Recognized loss = $3750 ($19500-$15750).

.

( 3 ) -- Land and building with an adjusted basis of $18900 used as a furniture repair shop exchanged for land and a building with an FMV of $43600 used as a car dealership.

Answer -

Qualifies as a like-kind exchange.

Basis of land and building = $18900 (same as old)

Recognized gain = $0

.

( 4 ) -- An office building with an adjusted basis of $21,200 exchanged for a heavy-duty truck with an FMV of $25,400. Both properties are held for 100% business purposes.

Answer -

These are not like-kind assets, so this does not qualify for like-kind treatment.

Basis of truck = $25400 (FMV).

Recognized gain = $4200 ($25400 - $21200).

.

( 5 ) -- A residential rental property held for investment with an adjusted basis of $232000 exchanged for a warehouse to be held for investment with an FMV of $191900.

Answer -

Qualifies for like-kind treatment

Basis of the new property = $232000 (same as old).

Recognized loss = $0