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AC553_W7_Solution11_29

# AC553_W7_Solution11_29 - Problem 11-29 Solution Like-Kind...

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1 Problem 11-29 Solution Like-Kind Exchanges: Basis and Gain or Loss Ben Bonn and Lester Lambert exchange business machines. Ben’s adjusted basis in his property is \$3,200, and the fair market value is \$4,500. Lester’s property has an adjusted basis of \$1,700 and a fair market value of \$2,000. Lester also gives Ben \$2,500 cash. What is Ben’s realized and recognized gain and basis in the new property? What is Lester’s realized and recognized gain and basis in the new property? Solution: Ben's realized and recognized gain is \$1,300 and the basis of the new machine is \$2,000. FMV of property received (\$2,000 + \$2,500) .. . . . . . . . . . . . . . . . . . . \$ 4,500 Less: Adjusted basis of property given up . . . . . . . . . . . . . . . . . . . . . . . 3,200 Gain realized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . … . . . . . \$ 1,300 Gain recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 1,300 Gain is recognized by Ben to the extent of boot received but not to exceed realized gain. Method I : Basis of old machine . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . \$ 3,200 Plus: Gain recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300 Less: Boot received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 Basis of new machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 2,000 Method II : FMV of property received . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 2,000
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