Cal exchanges an apartment building (including land) with an adjusted basis of $55,000 (and fair market value of $90,000) for a piece of undeveloped land valued at $80,000 and $10,000 cash. As a result of the exchange, Carl paid $14,000 of fees. What is Carl's recognized gain on the exchange?
A) 0
B) $10,000
C) $35,000
D) $21,000

Question

Quizplus · Accepted Answer

Carl's recognized gain is the lesser of the boot received ($10,000 cash) or the realized gain. The realized gain is the difference between the fair market value of the property received ($80,000 land + $10,000 cash = $90,000) and the adjusted basis of the property given up ($55,000), which is $35,000. Since the boot received is $10,000, Carl's recognized gain is $10,000. The fees paid do not affect the recognized gain calculation.

Cal Exchanges an Apartment Building (Including Land) with an Adjusted