Question

. Bob owned a duplex used as rental property. The duplex had an adjusted basis to Bob of $86,000 and a fair market value of $300,000. Bob transferred the duplex to his brother, Carl, in exchange for a triplex that Carl owned. The triplex had an adjusted basis to Carl of $279,000 and a fair market value of $300,000. Two months after the exchange, Carl sold the duplex to his business associate to whom he was not related for $312,000. How much, if any, gain or loss did Carl recognize with respect to the transaction with Bob

Answer 1

A) No gain or loss on the exchange with Bob, and $12,000 gain on the subsequent sale

Step-by-step explanation:

Since apparently both Bob and Charles owned their property for more than 2 years, the exchange classifies under section 1031 exchange between related parties. Therefore, no gain or loss should be recognized by any of them.

When Charles sold the property to his business associate, who is not related to him, he realize a $12,000 gain (= $312,00 - $300,000 basis).