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Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000. In addition, Pam receives $100,000 in cash. What is the recognized gain or loss and the basis of the investment land?a. $0 and $420,000.b. $100,000 and $420,000.c. $100,000 and $520,000.d. $280,000 and $700,000.e. None of the above.

Respuesta :

Answer: Option "d" $280000 and $700000.

Explanation:

Option “d” is correct because the recognized gain is $280,000.  Pam exchanges a building that has adjusted worth $520000 for the land which has a value of $700000. Thus, at this point, Pam is making a profit of (700000 - 520000) = $180,000. Moreover, he receives additional cash of $100,000. So, total gain by Pam is $180,000 + $100000 = $280,000. However, the tax basis of land refers to the fair market value at which it was acquired. So, it will be $700000.

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