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25 December, 15:12

Baker traded a building used in her business for some new land. Baker originally purchased the building for $50,000 and it had an adjusted basis of $30,000 at the time of the exchange. The new land had a fair market value of $35,000. Baker also paid $5,000 to the dealer in the transaction. What is Baker's adjusted basis in the land after the exchange?

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  1. 25 December, 15:14
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    The adjusted basis in the land after the exchange=-$10,000, meaning Baker realized a loss of $10,000 from the exchange

    Explanation:

    Step 1: Determine the initial loss/gain in value of the building

    initial loss/gain=original purchase price-adjusted basis

    where;

    original purchase price=$50,000

    adjusted basis=$30,000

    replacing;

    initial loss/gain=50,000-30,000=$20,000

    initial loss in value=-$20,000

    Step 2: Determine the loss or gain from the exchange

    loss/gain=35,000-30,000=$15,000

    gain=$15,000

    Step 3: Determine other additional costs

    Costs=loss=-$5,000

    Step 4: Determine the net gain/loss

    net gain/loss=-20,000 + (15,000) + (-5,000) = -$10,000

    The adjusted basis in the land after the exchange=-$10,000, meaning Baker realized a loss of $10,000 from the exchange
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