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17 June, 10:22

Fred and Sarajane exchanged land in a qualifying like-kind exchange. Fred gives up land with an adjusted basis of $11,000 (fair market value of $16,000) in exchange for Sarajane's land with a fair market value of $12,000 plus $4,000 cash. How much gain should Fred recognize on the exchange?

a. $5,000

b. $1,000

c. $0

d. $4,000

e. None of these choices are correct

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Answers (1)
  1. 17 June, 11:13
    0
    The answer is 5,000. the option (a) is correct

    Explanation:

    Solution

    Given that:

    The adjusted basis of land = $11,000

    The fair market value = $16,000

    Now,

    We have to find how much gain should Fred recognize on the exchange

    Thus

    The fair market value of land = $12,000 + $4,000 = $16,000

    Recognized exchange by Fred = fair market value of land - Give up value

    = $16,000 - $11,000

    =$5,000

    Therefore, the gain Fred should recognize or notice on the exchange is $5,000
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