Question

Cooper and Dane exchanged properties with each other. Cooper exchanged a commercial building and land with a basis of $200,000 and a fair market value of $320,000. The property exchanged by Cooper was also subject to a $180,000 liability that was assumed by Dane in the exchange. In addition to the liability assumption, Dane gave Cooper a smaller commercial building in a different location. That building had a fair market value of $250,000 and an adjusted basis to Dane of $190,000. The property exchanged by Dane was subject to a $140,000 liability that was assumed by Cooper in the exchange. To even up the exchange, Dane also gave Cooper $30,000 in cash.

Show your work below the questions. Provide labeled and sufficiently described answers to the questions.

1) What is Cooper’s realized gain or loss?

2) What is Dane’s realized gain or loss?

3) What is Cooper’s recognized gain or loss?

4) What is Dane’s recognized gain or loss?

5) What is the basis of the like-kind property acquired by Cooper?

6) What is the basis of the like-kind property acquired by Dane?

Answer 1

1) Cooper's Realized Profit / loss:

Cooper's Realized Profit / loss
Particulars	Amount ($)	Amount ($)
Fair Market Value of Dane's Property	250,000
(-) Liability on Dane's Property	140,000
Net FMV of Dane's Property		110,000
Cash given by Dane to Cooper		30,000
Total Benefit Received by Cooper		140,000
Fair Market Value of Cooper's Property	320,000
(-)Liability on Cooper's Property	180,000
Net FMV of Cooper's Property		140,000
Total Benefit Received by Dane		140,000
Realized Profit for Cooper		0

Explanation:

Inorder to find out the realized Gain/loss of the transaction, we must compare the fair market value of the properties. To find out whether cooper has Gained any profit we must compare the Fair market Value of the Benefit received by cooper and the Fair market value of the Benefit received by Dane.

• Fair market Value of the Benefit received by cooper: It is nothing but the Benefits received by Cooper on exchange of property. The building Given by Dane has Fair Market Value of $250,000 but it is subject to liability of $140,000. so the net FMV of the property is $110,000 and Cash received by Cooper on exchange is $30,000 which makes the Total benefit received by Cooper $140,000.
• Fair market value of the Benefit received by Dane: It is the Benefits received by Dane on exchange of property. The building Given by Cooper has Fair Market Value of $320,000 but it is subject to liability of $180,000. so the net FMV of the property is $140,000 and No Cash is received by Dane on exchange which makes the Total benefit received by Dane $140,000.

So, On Comparing the FMV of the properties exchanged, it is known that the benefit received by Cooper is equal to the benefit received by Dane. So, There is no Realized Profit or Loss in this transaction.

2) Dane's Realized Profit / loss:

To find out whether Dane has realized any profit we must compare the Fair market Value of the Benefit received by Dane and the Fair market value of the Benefit received by Cooper. As we have already calculated the FMV of benefits received by both Cooper and Dane in the previous step. There is No need to calcualte it again. As Both of them received the same amouunt of benefits from the transaction there is no realized Gain or loss for the Dane too.

3) Cooper's Recognized Profit / loss:

Cooper's Recognized Profit / loss
Particulars	Amount ($)	Amount ($)
Basis Value of Dane's Property	1,90,000
Liability of Dane's Propertty	1,40,000
Addjusted Basis Value of the Property		50,000
Cash given by Dane to Cooper		30,000
Total Benefit Received by Cooper		80,000
Basis Value of Cooper's Property	2,00,000
Liability on Cooper's Property	1,80,000	20,000
Total Benefit Received by Dane		20,000
Recognized Profit for Cooper		60,000

Explanation:

Inorder to find out the recognised Gain/loss of the transaction, we must compare the Basis value of the properties. To find out whether cooper has recognised any profit we must compare the Basis value of the Benefit received by cooper and the Basis value of the Benefit received by Dane.

• Basis Value of the Benefit received by cooper: The building Given by Dane has Basis Value of $190,000 but it is subject to liability of $140,000. so the adjusted Basis Value of the property is $50,000 and Cash received by Cooper on exchange is $30,000 which makes the Total benefit received by Cooper $80,000.
• Basis value of the Benefit received by Dane: It is the Benefits received by Dane on exchange of property. The building Given by Cooper has Basis Value of $200,000 but it is subject to liability of $180,000. so the adjusted basis value of the property is $20,000 and No Cash is received by Dane on exchange. which makes the Total benefit received by Dane $20,000

So, On Comparing the Basis Value of the properties exchanged, it is known that the benefit received by Cooper is $60,000 more than the benefits received by Dane. So, Recognized Profit for Cooper is $60,000

4) Dane's Recognized Profit / loss:

To find out whether Dane has recognized any profit we must compare the Basis Value of the Benefit received by Dane and the Basist value of the Benefit received by Cooper. As we have already calculated the benefits received by both Cooper and Dane in the previous step. There is No need to calcualte it again. As Dane Received $60,000 less than Cooper, the recognized loss for Dane is $60,000.