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    Realized and recognized gain or loss in exchange

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    Debbie Davis and Elizabeth Engels exchanged like-kind property. Debbie had an adjusted basis of $12,000 in her property (fair market value is $15,000). Elizabeth's property had an adjusted basis of $9,000, and a fair market value of $10,500, and Elizabeth gave Debbie $4,500 in cash. Determine Debbie's and Elizabeth's realized gain or loss, recognized gain or loss, and the basis in their new property.

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    Solution Preview

    See table attached.

    Property Exchange Debbie Elizabeth

    Fair market value 15,000 10,500
    Boot (cash) received 0 4,500
    Adjusted basis 12,000 9,000
    Realized Gain 3,000 6,000
    Recognized Gain 0 4,500
    Basis in new property ...

    Solution Summary

    This solution presents the resulting values for both Debbie and Elizabeth as a result of the exchange. The gain, realized and recognized) as well as the basis in the new property is calculated. The solution also includes the law with regard to like kind exchanges.

    $2.19

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