Kevin exchanges an office building used in business for one owned by Charlene. The FMV of Kevin's building is $280,000 (basis $150,000) and it is subject to a mortgage of $50,000, which is assumed by Charlene. Kevin receives $30,000 cash and Charlene's office building, which has a FMV of $200,000 (basis of $180,000).
a. What is the amount of gain realized by Kevin?
b. What is the amount of gain recognized by Kevin?
c. What is the basis of the new building to Kevin?
a. Kevin will have a realized gain of $130,000 calculated as property received of $200,000 + cash of $30,000 (boot) plus transfer of liability of $50,000 = 280,000
Less basis in building transferred $150,000
Realized gain $130,000
b. Kevin will recognize gain only to the extent of non like kind property: $30,000 cash + $50,000 of debt transferred ...
The solution explains the concepts and calculates the answers for gain realized, recognized and the basis of the new building.