Lily Exchanges a Building She Uses in Her Rental Business

question 263

Multiple Choice

Lily exchanges a building she uses in her rental business for a building owned by Kendall, which she will use in her rental business. The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000. Which of the following statements is correct?

• A) Lily's recognized gain is $50,000 and her basis for the building received is $120,000.
• B) Lily's recognized gain is $50,000 and her basis for the building received is $170,000.
• C) Lily's recognized gain is $0 and her basis for the building received is $120,000.
• D) Lily's recognized gain is $0 and her basis for the building received is $170,000.
• E) None of the above is correct.

---

Definitions:

Installment Method

A method used in taxation allowing the recognition of income over a period of years when payment from a sale of property is received in installments.

Section 179 Deduction

A tax deduction that allows businesses to deduct the full purchase price of qualifying assets financed during the tax year.

Contract Price

The total monetary amount agreed upon by the parties involved in a contract for the exchange of goods, services, or property.

Installment Sale

A financial arrangement allowing the buyer to make payments over a specified period of time, often used in real estate transactions.