In a like-kind exchange, Taxpayer gives up Real Estate (Basis $50,000, FMV $100,000) and receives Real Estate (FMV $90,000) plus $10,000 Cash. What is the recognized gain and the basis of the new property?

Answer options:

Gain $0; Basis $40,000

Gain $10,000; Basis $50,000

Gain $10,000; Basis $60,000

Gain $50,000; Basis $90,000

How to approach this question

1. Realized Gain = $100k - $50k = $50k. 2. Recognized Gain = Lesser of Realized or Boot ($10k). 3. New Basis = Old Basis ($50k) + Recognized Gain ($10k) - Boot Received ($10k) = $50k.

Full Answer

B.Gain $10,000; Basis $50,000✓ Correct

IRC §1031. Gain recognized is limited to boot received ($10,000). Basis of new property = Adjusted basis of old property ($50,000) + Gain recognized ($10,000) - Cash received ($10,000) = $50,000.

Common mistakes

Forgetting to subtract the cash received from the basis calculation.

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