A taxpayer exchanges a warehouse (Basis $100,000, FMV $200,000) for a new warehouse (FMV $150,000) and cash of $50,000. They incur $10,000 in closing costs. What is the recognized gain?

Answer options:

$50,000

$40,000

$100,000

How to approach this question

Transaction costs in a like-kind exchange offset cash boot received. <br/>Cash ($50k) - Costs ($10k) = $40k Net Boot. <br/>Recognize gain up to Net Boot.

Full Answer

B.$40,000✓ Correct

$40,000

Rev. Rul. 72-456. Transaction costs reduce the amount of boot received for purposes of recognizing gain. $50,000 cash - $10,000 costs = $40,000 net boot.

Common mistakes

Deducting expenses from the realized gain but not reducing the boot received.

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