Doug owns a warehouse with an adjusted basis of $120,000

Doug owns a warehouse with an adjusted basis of $120,000 and a fair market value of $276,000, that he uses in his business. The warehouse is subject to an $96,000 liability. Doug plans to exchange the warehouse for an office building owned by Edward that has a fair market value of $300,000, but is subject to a liability of $180,000. Edward has a basis in his office building of $72,000, and has always held the office building for investment. Edward will also transfer $60,000 cash to Doug along with the office building. Doug will assume Edward’s $180,000 liability and Edward will assume Doug’s $96,000 liability in the exchange. Give the tax consequences of this proposed exchange for both Doug and Edward, including their realized and recognized gain or loss and their adjusted basis in the properties received.

Dan sells his manufacturing plant and land originally purchased in 1980. Accelerated depreciation had been taken on the building, but the building is now fully depreciated. Dan is in the 39.6 percent marginal tax bracket this year 2016. Other information is as follows:

Property

Original Cost

Total Depreciation

Adjusted Basis

Selling Price

Plant Building

$2,800,000

$2,800,000

0

$3,200,000

Land

$500,000

N/A

$500,000

$800,000

Dan has not sold any other assets in 2016. A review of Dan’s files shows that the only other dispositions of business assets in the past five years was a truck sold for a $12,000 loss last year. Give the amount and character of Dan’s gains on the sale and the applicable tax rates at which those gains will be taxed in 2016.

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