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Book and Tax gain for Q&J, Inc. on recent sale of $533,000

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Five years ago, Q&J Inc. transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000. Q&J included its $127,000 realized gain in book income, but the exchange was nontaxable. This year, Q&J sold the parcel of land received in the exchange for $533,000 cash. Compute Q&J's book and tax gain on sale.

A. $188,000 book and tax gain
B. $188,000 book gain and $61,000 tax gain
C. $61,000 book and tax gain
D. None of the above

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Solution Summary

Book and Tax gain for Q&J, Inc. This transaction involves a Section 1031 exchange which is carefully explained in the solution.

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First we can agree that from start to finish, the total gain is 533,000 - 345,000 = $188,000

Since none of that gain has been recognized for tax purposes, it is all reportable in the year of sale.

For book purposes, the company recognized 127,000 as a result of the first exchange. There remains ...

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