Dean exchanges a business storage facility with a $120,000 adjusted basis for $40,000 cash and a parking lot with a $140,000 FMV.What is the amount of gain which Dean recognizes on the exchange?
A)$0
B)$20,000
C)$40,000
D)$60,000

Question

Quizplus · Accepted Answer

To determine the gain recognized on a like-kind exchange, you need to compare the adjusted basis of the property given up to the fair market value of the property received. In this case, Dean had a $120,000 adjusted basis for the storage facility, but he only received $40,000 in cash and a parking lot worth $140,000. Based on the fair market value of the property received, Dean recognized a gain of $20,000 ([$40,000 + $140,000] - $120,000), which he must report as taxable income. Therefore, the correct answer is C.

Dean Exchanges a Business Storage Facility with a $120,000 Adjusted