Joseph exchanged land (tax basis of $34,000), that he had held for 4 years as an investment, for similar land valued at $42,000 which was owned by Adrian. In connection with this transaction, Adrian assumed Joseph's $11,000 mortgage. As a result of this transaction Joseph should report a long-term capital gain of:

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Joseph's realized gain is calculated as the fair market value of the land received ($42,000) plus the mortgage assumed by Adrian ($11,000), minus the tax basis of the land given up ($34,000). This results in a realized gain of $19,000. However, under the like-kind exchange rules, the gain recognized is limited to the boot received, which is the mortgage assumed by Adrian ($11,000). Therefore, Joseph should report a long-term capital gain of $11,000.

Joseph Exchanged Land (Tax Basis of $34,000), That He Had