Problem 11-56 (LO 11-6) The following information applies to the questions displ

Question

Problem 11-56 (LO 11-6) The following information applies to the questions displayed below. Kase, an individual, purchased some property in Potomac, Maryland, for $158,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase's Maryland property. Kase agrees to the exchange. What is Kase's realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios? (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) Problem 11-56 Part-a a. The transaction qualifies as a like-kind exchange and the fair market value of each property is $740,000 Adjusted basis in new property

Explanation / Answer

SOLUTION

(A) Even though Kase has a realized gain of $582,000, the recognized gain is $0 because the transaction qualifies as a like-kind exchange and Kase did not receive any boot. Kase receives a carryover basis of $158,000 in the North Carolina property (the same basis Kase had in the Maryland property).

(B) Kase has a realized loss of ($39,000), but the recognized loss is $0 because the transaction qualifies as a like-kind exchange. Kase would have a carryover basis of $158,000

S.No. Description Amount ($) Explanation 1 Amount realized from machine 740,000 Given 2 Amount realized from boot (non like-kind property) 0 3 Total amount realized 740,000 1 + 2 4 Adjusted basis 158,000 Given 5 Gain realized 582,000 3 - 4 6 Gain recognized 0 Lesser of 2 or 5 7 Deferred gain 582,000 5 - 6 Adjusted basis in new property 158,000 1 - 7

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