Question

Your client Bebe Rebozo is contemplating the exchange of two parcels of investment land for two similar parcels in two separate transactions. Given the following details of the proposed transaction, compute the amount of recognized gain and loss (if any) on both parcels if your client completes the exchanges: Parcel A: Ten acres of land acquired 15 years ago with a current basis of $50,000. In exchange your client will receive eight acres of land (FMV = $80,000) and $20,000 in cash. Parcel B: Twenty acres of land acquired two years ago with a current basis of $100,000. In exchange, your client will receive twelve acres of land (FMV = $75,000) and $10,000 in cash.

How much gains and/or losses will your client recognize for Parcel A and Parcel B separately?

Answer 1

In the exchange of investment lands, Bebe Rebozo will recognize a gain of $50,000 on Parcel A. The basis of the property received ($80,000) and cash received ($20,000) exceeds the basis of the property exchanged ($50,000). For Parcel B, Bebe will recognize a loss of $15,000. The total value of the property and cash received ($85,000) is less than the basis of the property exchanged ($100,000).

In the exchange of investment lands, Bebe Rebozo will recognize a gain of $50,000 for Parcel A and a loss of $15,000 for Parcel B. For Parcel A, the basis of the property exchanged is $50,000, and Bebe will receive eight acres of land (FMV = $80,000) and $20,000 in cash. The total value received ($100,000) exceeds the basis, resulting in a recognized gain of $50,000.

For Parcel B, the basis of the property exchanged is $100,000, and Bebe will receive twelve acres of land (FMV = $75,000) and $10,000 in cash. The total value received ($85,000) is less than the basis, leading to a recognized loss of $15,000. The recognized gain or loss is determined by comparing the total value of property and cash received to the basis of the property exchanged in each transaction.

In summary, Bebe Rebozo will recognize a gain of $50,000 on Parcel A and a loss of $15,000 on Parcel B, reflecting the financial outcomes of the two separate exchange transactions.