D exchanged an apartment complex that he had owned for eight years for farm land.The apartment complex was worth $1,050,000 and D's basis was $475,000.The transferee assumed a note secured by an interest in the property of $800,000.D received $10,000 cash and assumed liability for loans against the farm land he received in the amount of $700,000.How much is D's gain recognized and his basis in the farm land (fair market value = $940,000), respectively?
A)$110,000 and $475,000
B)$110,000 and $465,000
C)$0 and $365,000
D)$10,000 and $375,000

Question

Quizplus · Accepted Answer

D's recognized gain is calculated by subtracting his basis in the exchanged property ($475,000) from the sum of the cash received ($10,000) and the liability assumed by the transferee ($800,000), then subtracting the liability D assumed ($700,000). This results in a recognized gain of $110,000. D's basis in the farm land is his original basis in the apartment complex ($475,000) plus the recognized gain ($110,000) minus the cash received ($10,000), which equals $475,000.

D Exchanged an Apartment Complex That He Had Owned for Eight