Marta and Luka exchanged like-kind equipment under I.R.C. Sec. 1031 on December 31, 2010. Marta gave up equipment worth $100,000, with an adjusted basis of $60,000. Luke gave up equipment worth $70,000, with an adjusted basis of $65,000; as well as stock worth $30,000 that had a basis of $15,000.
a. Calculate Marta's realized gain or loss, recognized gain or loss, and deferred gain or loss on the exchange of equipment.
b. Calculate Marta's basis in the new equipment received, as well as her basis in the stock.
c. Calculate Luka's realized gain or loss, recognized gain or loss, and deferred gain or loss on all parts of the transaction.
d. Calculate Luka's basis in the new equipment he received.
Property Exchange Marta Luka
Fair market value 100,000 70,000
Boot (cash) received 0 30,000
Adjusted basis 60,000 65,000
Realized Gain 40,000 20,000
Recognized Gain 0 20,000
Basis in new property 60,000 100,000
"Generally, if you exchange business or investment property solely for business or investment property of a like kind, Section 1031 provides that no gain or loss is recognized. If, as part of the exchange, you also ...
The solution first explains the concept of a tax deferred exchange, and then shows the full calculation and explanation for each of the four problem parts.