Trudi Corporation has a building that it needs to sell or exchange because of growth in its business.If Trudi sells the building,it will have a gain of $450,000.What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year.
A)$90,000
B)$153,000
C)$175,500
D)$450,000
E)None of the above

Question

Quizplus · Accepted Answer

If Trudi sells the building, it will have to pay taxes on the $450,000 gain. Assuming a tax rate of 34%, the tax liability would be $153,000. However, if Trudi exchanges the building, it can defer paying taxes on the gain. Therefore, by exchanging the building, Trudi can avoid paying the $153,000 in taxes. The $1,000,000 of taxable income from operations is irrelevant to this calculation.

Trudi Corporation Has a Building That It Needs to Sell