Question

Problem 8-20 Like-Kind Exchanges (LO 8.11) Carey exchanges land for other land in a qualifying like-kind exchange. Carey's basis in the land given up is $115,000, and the property has a fair market value of $150,000. In exchange for her property, Carey receives land with a fair market value of $100,000 and cash of $10,000. In addition, the other party to the exchange assumes a mortgage loan on Carey's property of $40,000. a. Calculate Carey's recognized gain, if any, on the exchange. $fill in the blank 2cb026fcb01f033_1 b. Calculate Carey's basis in the property received. $fill in the blank 5522dd03f02dfa9_1

Answer 1

Step-by-step explanation:

a. Calculate Carey's recognized gain

Fair market value of property received = 100,000

Add: Cash received = 10,000

Add: Liability assumed by other party = 40,000

Total amount realized = 150,000

Then, we deduct the adjusted basis of property given up from the total amount realized. This will be:

= 150,000 - 115,000

= 35,000

b. Calculate Carey's basis in the property received.

Basis of property given up = 115,000

Less: Boot received = 50,000

Add: gain realized 35,000

Basis of property received = 100,000

Note that boot received was calculated as:

Cash received = 10,000

Add: Liability assumed by other party = 40,000

Boot received = 50000