Question

Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Moss receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

Answer 1

$0 and $450,000.

Step-by-step explanation:

Calculation for What is the recognized gain or loss and the basis of the office building

Calculation for the recognized gain or loss

Using this formula

Recognized gain or loss =Amount realized -(Adjusted basis-Realized loss)

Let plug in the formula

Recognized gain or loss= ($350,000 + $150,000) -( $600,000-$100,000)

Recognized loss =($500,000-$500,000)

Recognized loss =$0

Therefore the Recognized loss will be $0

Calculation for the basis of the office building

Using this formula

Basis of the office building=FMV+Postponed loss

Let plug in the formula

Basis of the office building= $350,000+$100,000

Basis of the office building= $450,000

Therefore the Basis of the office building will be $450,000