Mel & Judy, LLC transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in exchange for a new asset worth $75,000. Which of the following statements is false? Explain.
A. The old asset's FMV is $70,000.
B. If the exchange is nontaxable, Mel & Judy's recognized gain is $5,000.
C. If the exchange is nontaxable, Mel & Judy's tax basis in the new asset is $58,100.
D. If the exchange is nontaxable, Mel & Judy identified the new asset within 45 days of selling the old asset.
E. The FMV of the new asset is $75,000.
What Is A Non-Taxable Exchange:
When two individuals exchange assets, the exchange may be deemed taxable or non-taxable depending on the circumstances surrounding the transaction. A Non-Taxable Exchange is one that results in no gain or loss being reported for tax purposes.
Answer and Explanation:
The answer is B.
- If the exchange is nontaxable, there will be no gain to report as part of income.
- Therefore the applicable gain is this case would be $0 and not $5,000.
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from Accounting 202: Intermediate Accounting IIChapter 8 / Lesson 2