Sean inherited a farm his grandfather had purchased 50 years ago for $40,000. It was valued at $1,000,000 when his grandfather died but has a current value of $1,100,000. Sean did not like farming so he traded the farm for an apartment building valued at $950,000 owned by Jean that has a basis of $700,000. In addition, Sean received $150,000 in cash from Jean to finalize the exchange.

Question

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B  C  D  Sean's amount realized is $1,100,000 ($950,000 apartment + $150,000 cash). Jean's amount realized is $1,100,000 (farm value).  Sean's gain realized is $100,000 ($1,100,000 - $1,000,000 basis). Jean's gain realized is $400,000 ($1,100,000 - $700,000 basis).  Sean's gain recognized is $150,000 (cash received). Jean's gain recognized is $0 (like-kind exchange).  Sean's basis in the apartment is $1,000,000 ($950,000 + $150,000 gain recognized - $100,000 gain deferred). Jean's basis in the farm is $700,000 (carryover basis).

Sean Inherited a Farm His Grandfather Had Purchased 50 Years