Question

Jim owns an apartment building with a fair market value of $225,000 and an adjusted basis of $85,000. He wants to acquire Frank's duplex, which has a fair market value of $200,000 and an adjusted basis of $130,000. In the exchange, Jim will also receive $25,000 in cash from Frank. Which of the following statements is correct with regard to recognition of gain in the like-kind exchange?

A. Frank recognizes a $25,000 gain.
B. Jim recognizes a $140,000 gain.
C. Jim recognizes a $25,000 gain.
D. Neither recognizes a gain.

Answer 1

C. Jim recognizes a $25,000 gain.

Step-by-step explanation:

In a like-kind exchange, the recognition of gain is generally deferred. However, if there is “boot” received in the transaction, such as cash, the gain is recognized to the extent of the boot received. In this case, Jim receives $25,000 in cash from Frank, so Jim recognizes a $25,000 gain.