Question 1

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

Accepted Answer

1. Realized Gain = Total FMV Received ($200k) - Old Basis ($100k) = $100k. 2. Recognized Gain = Lesser of Realized ($100k) or Boot ($20k) = $20k. 3. New Basis = Old Basis ($100k) - Boot ($20k) + Recognized ($20k) = $100k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Recognizing the full realized gain or calculating basis as simply FMV - Deferred Gain (which also works: $180k - $80k deferred = $100k).

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

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 2

More questions from this exam