Let\'s assume I have a rental property duplex with a basis of $86,000 and a fair

Question

Let's assume I have a rental property duplex with a basis of $86,000 and a fair market value of $300,000. In May 1, 2018 I transferred the duplex to my sister Sally in exchange for her triplex she owns . Her triplex has a basis of $279,000 and a fair market value of $300,000. Two months after the exchange, in July 1, 2018 my sister sold the duplex to her business associate Tony for $312,000. In regards to this transactions ,will my basis received of 300,000 triplex - basis of duplex 86,000.00 = a recognized gain of $214,00.00? . Can you tell me if my calculations is correct and if not where did I error?

Explanation / Answer

For calcuation of capital Gain on sale of assets, It is necessary to see on what basis the assets are recorded in the books. In this case, it means whether the assets are recorded in the books at book value or fair market value.

If the assets are recorded on fair value basis, No capital gain in this regard, Since, Fair value of the asset gone and fair value of the asset received are same.

If the assets are maintained at book value, as per the above said information , the capital gain will be $193000 ($279000-$86000).(It is assumed that the figures given are arrived after deduction of depreciation).

Generally, Assets are maintained at book value only. And depreciation can be charged on assets ony when they are used for business purpose and not for residential purpose.

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