Denali, Inc. exchanged realty with a $230,000 adjusted basis for like-kind realty with a $200,000 FMV and $5,000 cash. How much loss may Denali recognize?

Question

Quizplus · Accepted Answer

When exchanging like-kind properties, any gain or loss is not recognized for tax purposes, as long as certain requirements are met. One of those requirements is that the value of the like-kind property received must be equal to or greater than the value of the property given up. In this case, Denali received realty with a fair market value of $200,000, which is less than the adjusted basis of the property given up ($230,000). Therefore, there is no gain or loss recognized. The inclusion of $5,000 in cash does not affect the tax treatment of the exchange.