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Dean exchanges a business storage facility with a $120,000 adjusted basis for $40,000 cash and a parking lot with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange

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jepessoa

Answer:

$40,000

Explanation:

This transaction lacks commercial substance, therefore, Dean should only recognize the boot (cash received) as gain from this transaction. The adjusted basis for Dean's "new" parking lot is $120,000, the same adjusted basis as the business storage facility.

This happens because the boot was not more than 25% of the value of the total consideration received by Dean (cash + parking lot). If the boot is 25% or more, then the sale must be reported as a cash sale.

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