Question

I trade you land FMV 140,000 and give you 10,000 of IBM stock for your property that you acquired for 100,000 ans has current FMV of 150,000. You purchase the land 2 years ago. You sell the "new" land for 140,000 and the stock for 13,000 the week you receive both. What is your realized gain on the transaction with me? What is the boot? What is the regconized gain? What is the basis of the land? Securities? What is your gain on the sale of the land? Securities? Are these STCL or LTCG? What tax rate will apply for each gain?

Answer 1

Lets Start with the journal Entries

1) Land a/c Dr. 140,000

IBM stock a/c Dr. 10,000

To Property 100,000

To Capital Gain(Gain on property) 50,000

(Being Land and property traded)

2) Cash a/c Dr. 153,000

To Land 140,000

To IBM Stock 13,000

(Land and stock sold)

3) IBM Stock a/c Dr. 3,000

To Capital Gain 3,000

(Gain on selling of IBM stock)

Now lets start answering your question

• 50,000 is the realized gain on transaction with you
• Boot is cash or other property added to an exchange to make the value of the traded goods equal. So Boot will be (140,000 + 10,000 ) = 150,000
• Recognised gain will be (50,000 + 3,000) = 53,000
• Land purchased always recorded at the fair market value as on date purchased.
• Securities also recorded on the bais of fair market value or current value of securities as on date purchased.
• Gain on sale of land (140,000 - 140,000) = 0

Gain on Sale of Security (13,000 - 10,000) = 3,000

Gain on Sale of Property (150,000 - 100,000) = 50,000

• Gain on sell of Land & Security will be STCG, as their holding period is less than 36 months. (Holding period here is just 1 week)

Gain on sell of property will be treated as LTCG, as their holding period is more than 36 months, but in case of immovable property it is 24 months. (Holding Period here is 2 Years, we are assuming that he sold the property after completiob on 2 years)

• LTCG and STCG rates can be Different in different countries. General rates for LTCG is 20% for immovable property and STCG in case of shares is 15 %

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