Taxpayers sell or exchange property for many different reasons. Whether they need to dispose of an asset, experience loss of a property, transfer assets, or even reorganize through a merger or acquisition, nonetheless, transactions such as these can be tax-deferred exchanges. There are many benefits to a tax-deferred exchange; however, as a professional accountant, understanding the deferred gain or loss of the asset will be imperative to your practice.

For this Discussion, you will examine a specific tax situation to determine the tax-deferred exchange, suggest alternatives, and the consequences of the alternatives.

Instructions

ABC Inc. has the opportunity to sell its building to James Inc. for $4,300,000. The property has a basis of $1,900,000 and the buyer is willing to wait up to six months to occupy the property to allow ABC Inc. with enough time to locate and purchase a new building. ABC Inc. has a marginal tax rate of 21%.

For this Discussion, explain the alternatives that ABC Inc. should consider and what are the tax consequences of the alternatives.