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14 November, 02:40

Firm ML, a noncorporate taxpayer, exchanged residential rental property for 20 acres of investment land with a $200,000 FMV. ML used the straight-line method to compute depreciation on the rental property. Assume that ML exchanged the residential rental property for the 20 acres of investment land plus $22,000 (i. e., ML received cash in the exchange).

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  1. 14 November, 03:03
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    a. $222,000

    b. $22,000

    c. $158,000

    Explanation:

    a. FMV of rental property = FMV of land received + Received cash

    = $200,000 + $22,000

    = $222,000

    b. FMV of land received $200,000

    Cash boot received $22,000

    Less: Basis of rental property $158,000

    Realized gain $64,000

    Recognized gain (Boot) $22,000

    this transaction qualify for a like-kind exchange under section 1031 When no gain or loss is recognized on an exchange but on Boot received. But recognized gain will be lower of boot amount of realized gain.

    c. Carryover basis of original assets = FMV of rental property - Realized gain

    = $222,000 - $64,000

    = $158,000
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