29. On December 15, 2018. Mixum LLC transfers a property (land, building and per
ID: 2437520 • Letter: 2
Question
29. On December 15, 2018. Mixum LLC transfers a property (land, building and personal property) to a qualified intermediary in an attempt to consummate a like-kind exchange. The land is sold to an unrelated party on December 27, 2018, for $10,000,000; proceeds are allocable $2,000,000 to land, $7,000,000 to building and $1,000,000 to personal property. Mixum’s adjusted tax basis immediately prior to the transfer to the intermediary in each asset was as follows: land - $2,000,000, building - $5,000,000 and personal property - $0.
29a) Assume that replacement property is properly identified and exchanged on January 5, 2019 which has the following fair market values so Mixum pays an additional $500,000 and closes on January 15, 2019:
Describe the amount of gain recognized (if any), what year it is recognized and tax basis in each of the replacement properties (i.e. land, building and personal property).
29b) Assume that no replacement property is found and Mixum receives the $10,000,000 of sales proceeds from the qualified intermediary on January 15, 2019.
Describe the amount of gain recognized (if any) and what year it is recognized.
land $2,500,000 building $7,000,000 personal property $1,000,000Explanation / Answer
29a) Mixum LLC has transferred a property to an unrelated party. The total amount is $10,000,000 - $2,000,000 to land, $1,000,000 to personal property, and $7,000,000 to building.
The tax basis immediately prior to transfer was - Land - $2,000,000, and building - $5,000,000. There was no tax basis on personal property.
Amount of gain - $(2,500,000+7,000,000+1,000,000) - $(2,000,000+7,000,000+1,000,000) = $500,000
This amount will be recognized in the financial year 2018-19 itself.
For bulding and personal property, there is no tax basis as Mixum had to make no additional payments. However, in case of land, he had to make an additional payment of $500,000. The $500,000 will be the tax basis.
29b) As such there is no gain for the replacement property as there is no additional amount being paid. The amount of sales proceeds - $10,000,000 - will be recognized in the financial year 2018-19.
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