A. Orange Corporation exchanges a warehouse located in Michigan (adjusted basis

Question

A. Orange Corporation exchanges a warehouse located in Michigan (adjusted basis of $560,000) for a warehouse located in Ohio (adjusted basis of $450,000; fair market value of $525,000). Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange, and the basis of the warehouse acquired.

B.Assume that in addition to the warehouse Orange Corporation also received $100,000 in cash. Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange, and the basis of the warehouse acquired.

C.How would your answer in b. change if instead of receiving $100,000 in cash, the other party assumed Orange’s $100,000 mortgage on theMichigan warehouse?

Explanation / Answer

A). No Gain or Loss is recognized, because this asset is nontaxable like-kind exchange.

The basis for the new warehouse same as the basis for the old warehouse is $560000.

B) Calculation of Basis of New Warehouse ;-

C. Same As Answer B

Particulars Amount($) FMV of ohio Warehouse 525000 Cash Received 100000 Amount Realized 625000 Less : Adjusted Basis of Michigan Warehouse (560000) Realized Gain 65000 Recognized Gain 65000 Basis of New Warehouse ;- FMV of Ohio Warehouse 525000 Less : Postponed Gain 0 Basis of New Warehouse 525000

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