Lily exchanges a building she uses in her rental business for a building owned by Kendall, which she 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 received is $120,000.
B) Lily's recognized gain is $50,000 and her basis for the building received is $170,000.
C) Lily's recognized gain is $0 and her basis for the building received is $120,000.
D) Lily's recognized gain is $0 and her basis for the building received is $170,000.
E) None of the above is correct.

Question

Quizplus · Accepted Answer

When a taxpayer exchanges assets in a like-kind exchange, they do not realize a gain or loss at the time of the exchange. Instead, the adjusted basis of the old property carries over to the new property received. Therefore, Lily's recognized gain is $0 and her basis for the building received is $120,000.

Lily Exchanges a Building She Uses in Her Rental Business