Bud exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash. What is Bud's recognized gain or loss?
A) $0
B) $2,000
C) $6,000
D) $8,000
E) None of the above

Question

Quizplus · Accepted Answer

To calculate the recognized gain or loss, we need to compare the adjusted basis of the land given up ($22,000) to the total value of what is received ($28,000 + $2,000 = $30,000).

Since the value received is greater than the adjusted basis, there is a realized gain of $8,000 ($30,000 - $22,000). However, only the cash received ($2,000) is taxable, so the recognized gain is $0 for the land exchange itself.

Therefore, the answer is B, as Bud will only recognize a gain of $2,000 for the cash received.

Bud Exchanges Land with an Adjusted Basis of $22,000 and a Fair