Question

Herman exchanges his apartment complex for Heidi’s farm, and the exchange qualifies as a like-kind exchange. Herman’s adjusted basis for the apartment complex is $600,000 and the complex is subject to a $180,000 liability. The fair market value of Heidi’s farm is $770,000, and the farm is subject to a $100,000 liability. How much, if any, is Herman’s recognized gain and his basis in the farm?

The amount of boot received by Herman is $80,000 ($180,000 minus $100,000). If each party assumes a liability of the other party, Regulation Section 1.1031(d)-2 provides that only the net liability given or received is treated as boot. Since the amount of the boot received is less than the gain realized, Herman recognizes a gain of $80,000. The basis of the farm is determined as follows:

Answer 1

It is qualifies a like kind or property under us land/realty of business for exachange treatment

Computation of Herman Gain/loss:

1.Fair Market Value of Farm Received $770000

2.Add: Apartment Complex debt Relief $180000

3.Value of What Herman getting is(1+2) $950000

4.Less: Value of Herman giving Up

Adjusted basis Of apartment Complex $600000

Liability towards Exchange $100000

Total ($700000)

5.Gain/(loss) Realised(3-4) $250,000

The Basis value of the firm is calculated as

Adjusted basis of complex                           $600000

Less:Received boot (80000)

Add:gained 80000 Nil   

Basis of the farm                                        $600000