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 land and buildings 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

Quizplus · Accepted Answer

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 realized gain is $100,000 ($1,100,000 - $1,000,000 basis). Jean's realized gain is $400,000 ($1,100,000 - $700,000 basis). Sean recognizes a gain of $150,000 (cash received). Jean recognizes no gain as it is a like-kind exchange. Sean's basis in the apartment is $1,000,000 ($950,000 + $150,000 gain recognized - $100,000 deferred gain). Jean's basis in the farm is $700,000 (carryover basis).

Sean Inherited a Farm His Grandfather Had Purchased 50 Years