Laverne exchanges a rental beach house with an adjusted basis of $400,000 and fair market value of $320,000 for a mini-storage building with a fair market value of $200,000 plus $120,000 cash. What is the recognized gain or loss on the exchange and the basis of the mini-storage building?
What will be an ideal response?
Since the assets are not like-kind, the like-kind rules have no effect. The transaction is treated as a sale and Laverne would have ($80,000) recognized loss ($320,000 FMV received ? $400,000 basis).
Basis = $320,000 for the building and $120,000 for the cash.
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