Lily exchanges a building she uses in her rental business for a building owned by Kendall.She will use the building in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?
A)Lily's recognized gain is $50,000 and her basis for the building received is $120,000.
B)Lily's recognized gain is $50,000 and her basis for the building received is $170,000.
C)Lily's recognized gain is $0 and her basis for the building received is $120,000.
D)Lily's recognized gain is $0 and her basis for the building received is $170,000.

Question

Quizplus · Accepted Answer

When a taxpayer exchanges property in a like-kind exchange, they can defer recognizing any gain or loss on the exchange. In this case, Lily exchanged her building with an adjusted basis of $120,000 for a building owned by Kendall. Since the fair market value of Kendall's building is not given, we cannot determine Lily's recognized gain or loss. However, Lily's basis for the building received will be the same as her basis in the building she gave up, which is $120,000. Therefore, the correct answer is C.

Lily Exchanges a Building She Uses in Her Rental Business