Problem 15-34 (LO. 2) Ed owns investment land with an adjusted basis of $35,000.
ID: 2588135 • Letter: P
Question
Problem 15-34 (LO. 2) Ed owns investment land with an adjusted basis of $35,000. Polly has offered to purchase the land from Ed for $175,000 for use in a real estate development. The amount offered by Polly is $10,000 in excess of what Ed perceives as the fair market value of the land. Ed would like to dispose of the land to Polly but does not want to incur the tax liability that would result. He identifies an office building with a fair market value of $175,000 that he would like to acquire. Polly purchases the office building and then exchanges the office building for Ed's land If an amount is zero, enter "o" a. Calculate Ed's realized and recognized gain on the exchange and his basis for the office building. Ed's realized gain is Ed's basis for the office building is ,and his recognized gain is b. Calculate Polly's realized and recognized gain on the exchange and her basis in the land Polly's realized gain is $ and her recognized gain is on the exchange. Her basis in the land isExplanation / Answer
1. Ed's Realised Gain is $10000 (175000-10000) and his recognised gain is $165000 (165000-35000) and Eds basis of office building is $175000
Workings :
Realised gain is the gain over the fairvalue of the asset . In this case fair value of the asset is $10000 below the $175000 hence $165000 and gain is $10000
Recognised gain is the gain on the book value of teh asset to the fair value, Hence in this case it is $130000 which is 165000-35000
Ed will recognise office building at 175000, Price of the office building
b) Polly's realised gain is "0" and her recognised gain is "$0" and her basis for the land is $175000