Question

Repbulic LLC exchanged land used in its business for some new land to be used in the business. Republic LLC originally purchased the land it exchanged for $33,000. The new land had a fair market value of $37,500. Arlington also received $7,000 of cash in the transaction. What is Republic LLC's recognized gain or loss on the exchange?

Multiple Choice

• $0.

• $11,500.

• None of the choices are correct.

• $4,500.

• $7,000.

George operates a business that generated revenues from services of $50 million in 2019 and reported deductible expenses other than interest of $49 million in 2019, which included depreciation expense of $500,000. The business paid interest expenses of $800,000 in 2019, none of which was for loans used to purchase tax-exempt investments.

What is the maximum business interest deduction that George will be eligible to claim this year? Use the most recent tax law (as modified by the CARES Act) and assume George's business is not eligible for the small business exception.

rev: 11_13_2019_QC_CS-190184

Multiple Choice

• $800,000

• $750,000

• $450,000

• $500,000

• $522,000

Answer 1

Question 1:-

Based on the information available in the question, we understand that the transaction qualifies for a Like kind exchange. Under Like kind exchange , the recognized gain or loss is the lower of the gain realized and the cash received.

Hence, we compare the Realized gain and the cash received for Republic LLC to find out the recognized gain or loss.

i.) Realized gain = Fair Market value of property received + Cash received - Adjusted basis of the property transferred

Realized gain = $37,500 + $7,000 - $33,000

Realized gain = $11,500

ii.) Cash received = $7,000

The recognized gain for Republic LLC would be the smallest of the two i.e = $7,000

Hence, the correct answer is Option E - $7,000.

Option A is incorrect as gain needs to be recognized as boot(cash) has been received as part of the exchange transaction.

Option B is incorrect as $11,500 is the realized gain. The amount recognized would be limited upto the level of cash received.

Option C is incorrect as we have the answer at Option E.

Option D is incorrect as $4,500 is nothing but the different between realized gain and cash received. Recognized gain is limited to the lower of the realized gain and the cash received.