A taxpayer exchanges a business warehouse (adjusted basis $100,000, FMV $200,000) for a new warehouse (FMV $180,000) and $20,000 cash. What is the recognized gain?

Answer options:

$20,000

$100,000

$80,000

How to approach this question

Like-Kind Exchange with Boot: 1. Calculate Realized Gain ($200k Total Value - $100k Basis = $100k). 2. Identify Boot Received ($20k cash). 3. Recognized Gain = Lesser of Realized Gain or Boot Received.

Full Answer

B.$20,000✓ Correct

Realized gain = ($180,000 + $20,000) - $100,000 = $100,000. Recognized gain is the lesser of realized gain ($100,000) or boot received ($20,000). Thus, $20,000 is recognized.

Common mistakes

Recognizing the full realized gain.

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