MCQ-12515

A taxpayer owned land with a basis of $120,000, subject to a mortgage of $75,000. The
taxpayer exchanged the land held for another parcel of land with a fair market value of
$200,000 plus cash of $35,000, and the taxpayer was relieved of the mortgage on the
relinquished land. The transaction qualified for like-kind exchange treatment. What amount
of taxable gain will be recognized on the taxpayer's tax return for this exchange?

A. $35,000

B. $190,000

C. $115,000

D. $110,000

Explanation
Choice "D" is correct. In a qualified like-kind exchange, the gain recognized is the
lesser of the gain realized or boot received. Boot is non-like-kind property, which
includes cash, relief from liabilities, and nonqualifying property.

Fair market value (FMV) of new parcel of land $200,000

Plus: boot received ($35,000 cash + $75,000 debt relief) 110,000

Amount realized 310,000

Less: adjusted basis of parcel of relinquished land (120,000)

Gain realized 190,000

Gain recognized = $110,000 (lesser of $190,000 gain realized or $110,000 boot

received)

Choice "A" is incorrect. This amount is the cash boot received. Total boot received
includes both the $35,000 cash and the $75,000 debt relief for the mortgage on the
relinquished land assumed by the other party in the exchange.

Choice "B" is incorrect. This is the amount of the total gain realized. The gain realized
is only recognized to the extent of the $110,000 of boot received.

Choice "C" is incorrect. This would be the amount of gain realized if only the $35,000
cash received is included in boot received. Total boot received includes both the
$35,000 cash and the $75,000 debt relief for the mortgage on the relinquished land
assumed by the other party in the exchange.