Question

VV

1. purchased a house in New Hampshire 20 years ago for $30,000. When he died, an appraisal report showed that the house had a fair market value of $650,000. The house went to his Nephew Tom.

In a like-kind exchange, Tom exchanged the house with Jerry. Jerry’s house at the time of the exchange had a fair market value of $450,000 and an adjusted basis of $325,000

1. What is the reason why there is a boot in this exchange? Grandpa
2. Who is PAYING the boot? Tom or Jerry?
3. How much is the boot: $________
4. What is Tom’s Gain Realized? ________
5. What is Jerry’s Gain Realized? ________
6. What is Tom’s Gain Recognized? ________
7. What is Jerry’s Gain Recognized? ________
8. What is Tom’s basis in the new house received? ________
9. What is Jerry’s basis in the new house received? ________

Answer 1

A)WHAT IS THE REASON FOR BOOT IN THIS EXHANGE?

AS PER 1031,BOOT IS ARISED FOR LESS TAX PURPOSE. FOR EXAMPLE BY LIKE KIND EXCHANGE GAIN REALIZED IS MORE THEN THERE WILL BE LOW TAX PAYMENT.

B) WHO WILL PAY THE BOOT

JERRY WILL PAY THE BOOT. AS EXCHANE ASSETS OF TOM IS MORE THAN JERRY

C) HOW MUCH IS THE BOOT

= DIFFERENCE IN VALUE BETWEEN A PROPERTY AND THE ONE BEING EXCHANGED

= $6,50,000-$4,50,000

= $2,00,000

D)TOM'S GAIN REALIZED = FAIR MARKET VALUE - ADJUSTED BASIS

= $6,50,000-$325000

   =$3,25,000

E)JERRY'S GAIN REALISED = $4,50,000-$3,25,000

   = $1,25,000

F)TOM'S GAIN RECOGNISED

FMV RECOGNISED = 4,50,000

+ SECURITIES = 0

TOTAL FMV RECOGNISED    = 4,50,000

LESS BASIS PROPERTY GIVEN = (3,25,000)

REALISED GAIN    = 1,25,000

BOOT RECOGNISED BY TOM= 2,00,000

GAIN RECOGNISED WILL BE LOWER OF REALISED GAIN OR BOOT RECOGNISED

RECOGNISED GAIN = 1,25,000

G)JERRY GAIN RECOGNISED

FMV PROPERTY RECOGNISED = 6,50,00

LESS BASIS PROPERTY    = (3,25,000)

REALIZED GAIN = 3,25,000

BOOT RECOGNISED    = 0

GAIN RECOGNIZED    = 3,25,000

H) TOM BASESI FOR NEW HOUSE RECEIVED

BASIS IN LIKE KIND ASSETS RECEIVED :-

FAIR MARKET VALUE OF NEW ASSETS    4,50,000   

LESS:- GAIN NOT RECOGNISED    (3,25,000)

+LOSS NOT RECOGNIZED 0

BASIS OF TOM IN NEW HOUSE 1,25,000

I) JERRY BASIS FOR NEW HOUSE RECEIVED

FMV = 6,50,000

LESS:- GAIN NOT RECOGNISED (3,25,000)

+ LOSS NOT RECOGNISED 0

BASIS OF JERRY IN NEW HOUSE    = 3,25,000