A taxpayer exchanges an office building (Basis $200,000, FMV $500,000) for a warehouse (FMV $450,000) and $50,000 cash. What is the recognized gain and the basis of the warehouse?

Answer options:

Gain $0; Basis $200,000

Gain $50,000; Basis $250,000

Gain $50,000; Basis $200,000

Gain $300,000; Basis $450,000

How to approach this question

1. Realized Gain ($300k). 2. Recognized = Lesser of Realized or Boot ($50k). 3. New Basis = Old Basis - Boot + Gain Recognized.

Full Answer

C.Gain $50,000; Basis $200,000✓ Correct

IRC §1031. <br/>Realized Gain = ($450k + $50k) - $200k = $300k. <br/>Recognized Gain = Lesser of Realized ($300k) or Boot ($50k) = $50k. <br/>New Basis = $200k (Old) - $50k (Cash) + $50k (Gain) = $200,000.

Common mistakes

Forgetting to subtract boot received from the basis calculation.

Question 57 All questions Question 59

Practice the full CPA TCP Practice Exam 4

68 questions · hints · full answers · grading

More questions from this exam

Q01In Year 1, an executive exercises Incentive Stock Options (ISOs) to purchase 1,000 shares of comp...Medium Q02A taxpayer provides an interest-free loan of $200,000 to their adult child on January 1, Year 1, ...Hard Q03A taxpayer, age 15, has $4,500 of interest income and no earned income in Year 1. The taxpayer is...Medium Q04A taxpayer anticipates their marginal tax rate will increase from 24% in Year 1 to 35% in Year 2....Medium Q05A taxpayer is subject to the safe harbor rules for estimated tax payments. Their Year 1 Adjusted ...Medium

View all 68 questions →