Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000.In addition, Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?
A)$0 and $420,000.
B)$100,000 and $420,000.
C)$100,000 and $520,000.
D)$280,000 and $700,000.

Question

Quizplus · Accepted Answer

To calculate the recognized gain or loss, we need to compare the fair market value of the investment land ($700,000) with the adjusted basis of the rental building ($520,000). The difference is $180,000 ($700,000 - $520,000). However, Pam also received $100,000 in cash, so the recognized gain is reduced by that amount, leaving a recognized gain of $80,000 ($180,000 - $100,000).

To calculate the basis of the investment land, we start with the adjusted basis of the rental building ($520,000) and add the recognized gain ($80,000), for a total basis of $600,000 ($520,000 + $80,000).

Pam Exchanges a Rental Building, Which Has an Adjusted Basis