13. Award: 10.00 points Problems? Adjust credit for all students.
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).
a. Assuming that ML’s exchange was negotiated at arm’s length, what is the FMV of the rental property?
b. If the adjusted basis of the rental property is $158,000, compute ML’s realized and recognized gain. What is the character of the
recognized gain?
c. Compute ML’s basis in the 20 acres of investment land.
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Compute ML’s basis in the 20 acres of investment land.
Basis $ 158,000
Required B Required C
Explanation:
a. The residential rental property must have a $222,000 FMV.
b. ML realizes a $64,000 gain and recognizes a $22,000 gain on this like-kind exchange. The recognized gain is Section 1231 gain.
c. ML’s basis in the 20 acres is $158,000.
References
Worksheet Learning Objective: 09-02 Learning Objective: 09-05 Identify properties that qualify
Compute the substituted for like-kind exchange treatment.
basis of property received in
a nontaxable exchange.
Difficulty: 2 Medium Learning Objective: 09-03
Compute gain recognized
when boot is received in a
nontaxable exchange.
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14. Award: 10.00 points Problems? Adjust credit for all students.
Alice and Brendan exchanged the following business real estate:
Undeveloped Commercial
land building
(exchanged (exchanged by
by Alice) Brendan)
FMV $ 975,000 $ 1,570,000
Mortgage -0- (595,000)
Equity $ 975,000 $ 975,000
a. If Alice's adjusted basis in the undeveloped land was $360,000, compute Alice's realized gain, recognized gain, and basis in the
commercial building received in the exchange.
b. If Brendan's adjusted basis in the commercial building was $790,000, compute Brendan's realized gain, recognized gain, and basis
in the undeveloped land received in the exchange.
Complete this question by entering your answers in the tabs below.
Required A Required B
If Alice's adjusted basis in the undeveloped land was $360,000, compute Alice's realized gain, recognized gain, and basis in
the commercial building received in the exchange.
Realized gain $ 615,000
Recognized gain $ 0
Basis $ 955,000
Required A Required B
Explanation:
a. Alice’s realized gain is $615,000 ($1,570,000 amount realized − $955,000 adjusted basis [$360,000 adjusted basis of land +
$595,000 debt assumption]). Alice recognizes no gain and takes a $955,000 basis in the commercial building.
b. Brendan’s realized gain is $780,000 ($1,570,000 amount realized [$975,000 FMV of land + $595,000 debt relief] − $790,000
adjusted basis). Brendan must recognize $595,000 of his realized gain, since the debt relief is treated as boot. Brendan’s tax basis in
the land is $790,000.
References
Worksheet Learning Objective: 09-02
Compute the substituted
basis of property received in
a nontaxable exchange.
Difficulty: 2 Medium Learning Objective: 09-06
Describe the effect of the
relief and assumption of
debt in a like-kind exchange.
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14. Award: 10.00 points Problems? Adjust credit for all students.
Alice and Brendan exchanged the following business real estate:
Undeveloped Commercial
land building
(exchanged (exchanged by
by Alice) Brendan)
FMV $ 975,000 $ 1,570,000
Mortgage -0- (595,000)
Equity $ 975,000 $ 975,000
a. If Alice's adjusted basis in the undeveloped land was $360,000, compute Alice's realized gain, recognized gain, and basis in the
commercial building received in the exchange.
b. If Brendan's adjusted basis in the commercial building was $790,000, compute Brendan's realized gain, recognized gain, and basis in
the undeveloped land received in the exchange.
Complete this question by entering your answers in the tabs below.
Required A Required B
If Brendan's adjusted basis in the commercial building was $790,000, compute Brendan's realized gain, recognized gain, and
basis in the undeveloped land received in the exchange.
Realized gain $ 780,000
Recognized gain $ 595,000
Basis $ 790,000
Required A Required B
Explanation:
a. Alice’s realized gain is $615,000 ($1,570,000 amount realized − $955,000 adjusted basis [$360,000 adjusted basis of land +
$595,000 debt assumption]). Alice recognizes no gain and takes a $955,000 basis in the commercial building.
b. Brendan’s realized gain is $780,000 ($1,570,000 amount realized [$975,000 FMV of land + $595,000 debt relief] − $790,000 adjusted
basis). Brendan must recognize $595,000 of his realized gain, since the debt relief is treated as boot. Brendan’s tax basis in the land
is $790,000.
References
Worksheet Learning Objective: 09-02
Compute the substituted
basis of property received in
a nontaxable exchange.
Difficulty: 2 Medium Learning Objective: 09-06
Describe the effect of the
relief and assumption of
debt in a like-kind exchange.
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15. Award: 10.00 points Problems? Adjust credit for all students.
Firm PO and Corporation QR exchanged the following business real estate:
Marvin
Gardens Boardwalk
(exchanged by (exchanged
PO) by QR)
FMV $1,040,000 $ 325,000
Mortgage (715,000) -0-
Equity $ 325,000 $ 325,000
a. If PO’s adjusted basis in Marvin Gardens was $403,000, compute PO’s realized gain, recognized gain, and basis in Boardwalk.
b. If QR’s adjusted basis in Boardwalk was $78,000, compute QR’s realized gain, recognized gain, and basis in Marvin Gardens.
Complete this question by entering your answers in the tabs below.
Required A Required B
If PO’s adjusted basis in Marvin Gardens was $403,000, compute PO’s realized gain, recognized gain, and basis in Boardwalk.
Realized gain $ 637,000
Recognized gain $ 637,000
Basis $ 325,000
Required A Required B
Explanation:
a. PO’s realized gain is $637,000 ($1,040,000 amount realized [$325,000 FMV of Boardwalk + $715,000 debt relief] − $403,000
adjusted basis). PO must recognize the entire $637,000 gain because the $715,000 boot (debt relief) exceeds the realized gain.
PO’s tax basis in Boardwalk is $325,000.
b. QR’s realized gain is $247,000 ($1,040,000 amount realized − $793,000 adjusted basis [$78,000 adjusted basis in Boardwalk +
$715,000 debt assumption]). QR recognizes no gain and takes a $793,000 basis in Marvin Gardens.
References
Worksheet Learning Objective: 09-02
Compute the substituted
basis of property received in
a nontaxable exchange.
Difficulty: 2 Medium Learning Objective: 09-06
Describe the effect of the
relief and assumption of
debt in a like-kind exchange.
This study source was downloaded by 100000826825978 from CourseHero.com on 03-15-2023 02:30:54 GMT -05:00
https://www.coursehero.com/file/61395497/Taxation-Project-3pdf/
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