Lorch Company exchanged an old asset with a $120,700 tax basis and a $155,000 FMV for a new asset with a $142,250 FMV and $12,750 cash.a. If the old asset and the new asset are like-kind properties, compute Lorch's realized and recognized gain and Lorch's tax basis in the new asset. b. How would your answers change if the new asset is worth only $116,000, and Lorch received $39,000 cash in the exchange?
What will be an ideal response?
a. Lorch's realized gain is $34,300 ($155,000 amount realized ? $120,700 basis), its recognized gain is $12,750 (boot received), and its basis in the new asset is $120,700 ($120,700 basis of old asset + $12,750 gain recognized ? $12,750 boot received).
b. Lorch would recognize the entire $34,300 gain realized, and its basis in the new asset would be $116,000 ($120,700 basis of old asset + $34,300 gain recognized ? $39,000 boot received).
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