Question

Marsha exchanged land in Florida that was used in her business for land in Iowa that also was for use in her business. The land in Florida had an FMV of 52,700 and an adjusted basis of40,000, and the land in Iowa had an FMV of 57,700. Marsha also paid5,000 cash in the transaction. What is Marsha's recognized gain on the transaction?

Answer 1

Marsha's recognized gain on the land exchange, involving both a like-kind exchange and additional cash, is the amount of cash received, which is $5,000.

Step-by-step explanation:

When Marsha exchanged land in Florida for land in Iowa plus $5,000 cash, the transaction involves a like-kind exchange as well as additional consideration known as "boot". The recognized gain is calculated as the lesser of the actual gain realized or the amount of boot received.

In Marsha's case, the gain realized is the FMV of the Iowa land and cash received (57,700 + 5,000 = 62,700) minus the adjusted basis of the Florida land (40,000), which is 22,700. However, since she received 5,000 cash as boot, which is less than the actual gain realized, the recognized gain is the amount of the boot, which is 5,000. Therefore, Marsha's recognized gain on the transaction is $5,000.