Question

Lily exchanges a building she uses in her rental business for a building owned by Kendall, which Lily will use in her rental business. The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000. Which of the following statements is correct?

A. Lily's recognized gain is $50,000 and her basis for the building she received is $120,000.
B. Lily's recognized gain is $50,000 and her basis for the building she received is $170,000.
C. Lily's recognized gain is $0 and her basis for the building she received is $120,000.
D. Lily's recognized gain is $0 and her basis in the building she received is $170,000.
E. None of the above is correct!

Answer 1

C) Lily's recognized gain is $0 and her basis for the building she received is $120,000.

Step-by-step explanation:

Section 1031 exempts a taxpayer from paying any gains resulting from the sale of business related property if the money resulting from the sale is used to reinvest in another similar property that will be used by your business.

In this case, Lily exchanged her old building for a new one, so she qualifies for a like-kind exchange because she will continue the same business activity with the new building.