[dbmonster21]

Becker Questions –

CPA fanatics, Inc. Enters into an exchange transaction with funny lawyers, Inc. CPA fanatics exchanges a building it has used to run one of its retail locations for land that will be used for the development of a “numbers themed” amusement park. The building given up by CPA fanatics has a FMV of $350,000, original purchase price of $300,000 and depreciation of $80,000. The land received by CPA fanatics has a basis and FMV of 280,000. CPA fanatics also receives $70,000 cash from funny lawyers in the exchange.

FYI, this is a Like-kind exchange simulation….

Question #4: What is the total basis in the property received by CPA Fanatics?

Becker Answer: $290,000

My Answer: $220,000 (280,000 FMV of acquired land – 60,000 deferred gain).

Can anyone explain how the Becker answer is $290,000? What am I doing wrong here?

[ilysaml]

I have also the same concern, going by the rule (FMV of Property Received – Deferred Gain + Deferred Loss) gives me a total basis of $220K.

[AndrewE]

Thought I was lost too, I ran into the same issue I kind of just ignored it and moved on.

[dbmonster21]

Ok ty for the response guys

[MSC626]

Yep, I strongly believe $220 is correct.
The answer of $290 New basis is excluding $70,000 Boot/cash….which is incorrect!\

Becker teaches to calculate basis of new property in 2 different ways:

Method 1 (via textbook)
New basis $220,000 = $280,000 FMV of new property – $60,000 deferred gained + $0 deferred loss

OR

Method 2 (via MCQ)

New basis $220,000 = $220,000 adj. basis property given up + $70,000 gain recog. – $70,000 Boot received

[Kodiak]

I've been a bit confused on this also but isn't the formula supposed to be the adjusted basis of the property + gain recognized(boot received) – gain deferred + loss deferred? Because he received the 70k cash it adds to the basis of the property which is how you end up with 290k. I feel like they just left off part of the formula. I've seen it that way in the MCQ but like you all mentioned, it isn't spelled out like that in the textbook formula. Basis questions are kicking my butt. 🙁

[prison_break]

Becker's answer $290K is correct. Essentially the question is what is the TOTAL basis related to the property received, which consists of $220K basis of the new property received plus $70K cash received, TOTAL basis would then be $290K. Hope this helps.

[ilysaml]

@prison break
Is there a difference between basis and TOTAL BASIS?

[prison_break]

@ilysaml
Yes, if the question is looking for the Total basis, basically it will be the basis of the new property received (i.e., FMV of prop – deferred gain or + deferred loss) plus the tax basis of cash received. But it doesn't mean it adds up to the basis of the property received. Very rare cases you will encounter this kind of question because most of becker's focus of question is just the basis of the property, they wouldn't usually ask for the basis of the cash received anymore, which is a separate asset.

Thanks!

[Author]

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