Bud exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash.What is Bud's recognized gain or loss?
A)$0
B)$2,000
C)$6,000
D)$8,000

Question

Quizplus · Accepted Answer

To determine the recognized gain or loss in a like-kind exchange, we need to calculate the realized gain or loss and then adjust it for any boot received (cash or non-like-kind property) in the exchange.

Realized Gain or Loss = Fair Market Value of Property Received - Adjusted Basis of Property Given Up

In this case, the realized gain is:

$28,000 (FMV of property received) - $22,000 (Adjusted basis of property given up) = $6,000 realized gain

However, since there was boot received in the exchange, we need to adjust this gain:

Boot Received = $2,000 cash

The lesser of the realized gain or the boot received is the recognized gain or loss.

$2,000 (boot received) is less than $6,000 (realized gain), so the recognized gain is $2,000.

Therefore, the answer is B) $2,000.

Bud Exchanges Land with an Adjusted Basis of $22,000 and a Fair