Carlton holds undeveloped land for investment. His adjusted basis in the land is
ID: 2565735 • Letter: C
Question
Carlton holds undeveloped land for investment. His adjusted basis in the land is $127,500, and the FMV is $212,500. On November 1, 2016, he exchanges this land for land owned by his son, who is 31 years old. The appraised value of his son’s land is $205,000 with a basis of $190,000.
a. Calculate Carlton’s realized and recognized gain or loss from the exchange with his son and on Carlton’s subsequent sale of the land to a real estate agent on July 19, 2017, for $256,000. -
Realized gain on exchange = $77500, Total Recognized gain = ?????
b. Calculate Carlton’s realized and recognized gain or loss from the exchange with his son if Carlton does not sell the land received from his son, but his son sells the land received from Carlton on July 19, 2017. -
Realized gain on exchange = $77500, Total Recognized gain = ?????
Explanation / Answer
Realized gain is the increase in the taxpayer's economic position as a result of the exchange .In a sale, tax is paid on the realized gain.Recognized gain is the taxable gain. Recognized gain is lesser of realized gain or the net boot received.
Answer A)
Total Recognized gain to carlton
Recognized gain on exchange with son
=190000- 127500
=62500
Recognized gain on subsequent sale to agent
=256000- 190000
=66000
Total Recognized gain = 62500+66000
= $128500
B) carlton's Recognized gain
190000-127500
=$ 62500
Carlton's realized gain
= 205000- 127500 = 77500
Gain to his son
realized gain = revaluation gain + exchange gain with father
Revaluation gain = 205000-190000 = 15000
Exchange with father =212500-205000 = 7500
Total realized gain to son =22500
Recognized gain to son = 256000-127500
=128500