Pamela owns land for investment purposes.The land is worth $300,000 (basis of $260,000 to Pamela).Pamela exchanges the land,plus $20,000 cash,for a warehouse to be used in her business.The FMV of the warehouse is $400,000,but the warehouse is subject to a mortgage of $80,000,which is assumed by Pamela.Pamela must recognize a gain of

Question

Quizplus · Accepted Answer

The gain recognized is the difference between the FMV of the warehouse ($400,000) and the adjusted basis of the land ($260,000) plus the cash paid ($20,000). The adjusted basis of the land is increased by the cash paid because the cash is "boot" that is treated as additional consideration received in the exchange. Therefore, the gain recognized is $400,000 - ($260,000 + $20,000) = $120,000.

Pamela Owns Land for Investment Purposes