Would you advise Mr. X that he could treat this as a good § 1031 LKE? Why or why not? What was Mr. X’s tax basis in the mansion immediately after the exchange?
Would you advise Mr. X that he could treat this as a good § 1031 LKE? Why or why not? What was Mr. X’s tax basis in the mansion immediately after the exchange?
Chapter10: Cost Recovery On Property: Depreciation, Depletion, And Amortization
Section: Chapter Questions
Problem 31P
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Question
Mr. X owned an apartment building. He exchanged it for Ms. Y’s mansion, which Mr. X remodeled and uses as his office for his Schedule C accounting practice.
Here are some additional facts:
- Mr. X’s adjusted basis in his apartment building was $1,400,000.
- Ms. Y’s adjusted basis in her mansion was $2,250,000.
- No cash or other / additional consideration passed in either direction in connection with the exchange.
- Neither property was encumbered by any debt.
- On the county property tax rolls, Mr. X’s apartment building was listed at a value of $3.25 million.
- On the county property tax rolls, Ms. Y’s mansion was listed at a value of $3.6 million.
- At the time of the exchange and for years before, Ms. Y actually lived in her mansion; it was strictly her personal residence – she never carried on any trade or business there, nor did anything else that ever would have re-sulted in classification of the mansion as anything other than personal use property.
- Would you advise Mr. X that he could treat this as a good § 1031 LKE? Why or why not?
- What was Mr. X’s tax basis in the mansion immediately after the exchange?
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