Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?
A)$0
B)$10,000
C)$20,000
D)$30,000

Question

Quizplus · Accepted Answer

The recognized gain is equal to the realized gain minus any deferred gain. The realized gain is the difference between the fair market value of the property received and the adjusted basis of the property given up. In this case, the realized gain is:

$80,000 (FMV of acquired land) - $60,000 (adjusted basis of surrendered land) = $20,000

However, because the motorcycle is for personal use, it is not considered like-kind property and is therefore treated as boot. The boot received is the FMV of the motorcycle, which is $10,000. The deferred gain is:

$60,000 (adjusted basis of surrendered land) / $80,000 (FMV of acquired land) x $20,000 (realized gain) = $15,000

Therefore, the recognized gain is:

$20,000 (realized gain) - $15,000 (deferred gain) = $5,000

Since $5,000 is less than the FMV of the motorcycle received, the recognized gain is equal to the FMV of the motorcycle, which is $10,000. Therefore, the answer is B.

Gena Exchanges Land Held as an Investment with a $60,000