Herman exchanges his apartment complex for Heidi’s farm, and the exchange qualif
ID: 2404446 • Letter: H
Question
Herman exchanges his apartment complex for Heidi’s farm, and the exchange qualifies as a like-kind exchange. Herman’s adjusted basis for the apartment complex is $600,000 and the complex is subject to a $180,000 liability. The fair market value of Heidi’s farm is $770,000, and the farm is subject to a $100,000 liability. How much, if any, is Herman’s recognized gain and his basis in the farm?
The amount of boot received by Herman is $80,000 ($180,000 minus $100,000). If each party assumes a liability of the other party, Regulation Section 1.1031(d)-2 provides that only the net liability given or received is treated as boot. Since the amount of the boot received is less than the gain realized, Herman recognizes a gain of $80,000. The basis of the farm is determined as follows:
Explanation / Answer
It is qualifies a like kind or property under us land/realty of business for exachange treatment
Computation of Herman Gain/loss:
1.Fair Market Value of Farm Received $770000
2.Add: Apartment Complex debt Relief $180000
3.Value of What Herman getting is(1+2) $950000
4.Less: Value of Herman giving Up
Adjusted basis Of apartment Complex $600000
Liability towards Exchange $100000
Total ($700000)
5.Gain/(loss) Realised(3-4) $250,000
The Basis value of the firm is calculated as
Adjusted basis of complex $600000
Less:Received boot (80000)
Add:gained 80000 Nil
Basis of the farm $600000