Business K exchanged old machinery (FMV $95,000) for new machinery (FMV $95,000). Business K’s tax basis in the old machinery was $107,000.
a. Compute Business K’s realized loss, recognized loss, and tax basis in the new machinery assuming the exchange was a taxable transaction.
b. Compute Business K’s realized loss, recognized loss, and tax basis in the new machinery assuming the exchange was a nontaxable transaction.
c. Six months after the exchange, Business K sold the new machinery for $100,000 cash. How much gain or loss does Business K recognize if the exchange was taxable? How much gain or loss if the exchange was nontaxable?