Question
Ian exchanges a warehouse used in his business with an adjusted basis of 220,000 for a qualifying like-kind commercial office building with a fair market value of310,000. As part of the transaction, Ian also receives $30,000 in cash boot. What is Ians recognized gain on this exchange, and what is his adjusted basis in the newly acquired office building?
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Ian recognizes a 30,000 gain , and his basis in the new office building is220,000 . Rationale: Under Section 1031, the total realized gain is calculated as Amount Realized (310,000 FMV +30,000 cash = 340,000) minus Adjusted Basis (220,000) = 120,000. In a like-kind exchange, realized gain is recognized to the lesser of the realized gain (120,000) or the fair market value of boot received (30,000 cash). Thus, recognized gain is30,000. The basis in the new property equals the adjusted basis of the old property (220,000) minus cash received (30,000) plus gain recognized (30,000) =220,000.
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