Question

Daniella exchanges business land with a $100,000 adjusted basis for $10,000 cash and business land with a $96,000 FMV. What is the gain or loss on the exchange?

1) Gain of $4,000
2) Loss of $4,000
3) Gain of $10,000
4) Loss of $10,000

Answer 1

The correct gain on Daniella's exchange is $6,000, which is calculated by deducting the adjusted basis of the land given up ($100,000) from the total value received ($106,000). Therefore, the options provided do not include the correct answer.

Step-by-step explanation:

When Daniella exchanges business land with a $100,000 adjusted basis for $10,000 cash and business land with a $96,000 fair market value (FMV), the gain or loss on the exchange can be calculated by comparing the sum of the cash received plus the FMV of the land acquired to the adjusted basis of the land given up. In this case:

• Cash received: $10,000
• FMV of land received: $96,000
• Total value received: $10,000 + $96,000 = $106,000
• Adjusted basis of land given up: $100,000

The gain on the exchange is the total value received ($106,000) minus the adjusted basis of the land given up ($100,000), which results in a gain of $6,000. Therefore, none of the provided options are correct because the gain calculated is not one of the offered choices.