Laurie owns land held for investment.The land's FMV is $150,000.Laurie's basis in the land is $130,000.Laurie exchanges the land,plus $20,000 of cash,for a warehouse owned by Trey.The warehouse is worth $210,000,but is subject to a mortgage of $40,000 which Laurie will assume.Trey's basis in the warehouse is $120,000.Laurie's basis in the warehouse received will be

Question

Quizplus · Accepted Answer

To figure out Laurie's new basis in the warehouse received, we need to calculate the realized gain and the recognized gain.

Realized gain = Fair Market Value (FMV) of warehouse received ($210,000) - Adjusted Basis of land given up ($130,000) - Cash paid ($20,000) = $60,000

Recognized gain = Realized gain ($60,000) - Mortgage assumed by Laurie ($40,000) = $20,000

Laurie's new basis in the warehouse received = Trey's basis in the warehouse ($120,000) + recognized gain ($20,000) = $140,000

Therefore, the correct answer is C) $190,000, which is the sum of the mortgage assumed ($40,000) and Laurie's new basis in the warehouse received ($140,000).

Laurie Owns Land Held for Investment