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Mel & Judy, LLC transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in...

Question:

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.

Learn more about this topic:

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How to Calculate Corporate Taxable Financial Income

from Accounting 202: Intermediate Accounting II

Chapter 8 / Lesson 2
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