Question

In a $1031 like-kind exchange, Rafael exchanges a business building that originally cost $346,800. On the date of the exchange, the building given up has an adjusted basis of $138,720 and a fair market value of $190,740. Rafael pays $28,611 and receives a building with a fair market value of $219,351.

Compute the following.

a. Rafael's realized gain on the exchange is $____.
b. Rafael's recognized $1031 gain is $___.
c. Rafael's $1245 depreciation recapture of $___is carried over to the replacement property.

Answer 1

A. $52,020

B. $0

C. $208,080

Step-by-step explanation:

a. Computation of Rafael's realized gain on the exchange

Using this formula

Realized gain=Fair market value -Adjusted basis

Let plug in the formula

Realized gain= $190,740-$138,720

Realized gain=$52,020

Therefore a. Rafael's realized gain on the exchange is $52,020

b. Based on the information given Rafael's recognized $1031 gain is $0 reason been that

NO BOOT WAS RECEIVED

c. Computation for Rafael's $1245 depreciation recapture Amount

Using this formula

Depreciation recapture Amount=Equipment originally cost -Adjusted basis

Let plug in the formula

Depreciation recapture=$346,800-$138,720

Depreciation recapture=$208,080

Therefore Rafael's $1245 depreciation recapture of $208,080 is carried over to the replacement property