Kole owns a warehouse used in his business which has an adjusted basis of $240,000 and is subject to a mortgage with an $80,000 principal balance. Kole exchanges the warehouse for land worth $320,000. In addition, he receives cash of $40,000. What is Kole's realized gain?

Question

Quizplus · Accepted Answer

Kole's realized gain is calculated as the fair market value of the land received ($320,000) plus the cash received ($40,000) minus the adjusted basis of the warehouse ($240,000). Therefore, the realized gain is $320,000 + $40,000 - $240,000 = $120,000. However, the mortgage relief of $80,000 is also considered as part of the amount realized, making the total realized gain $200,000.

Kole Owns a Warehouse Used in His Business Which Has