Debbie owns office equipment with a basis of $300,000 and a holding period starting on May 10, 2004. Debbie exchanges the equipment for other office equipment owned by Doug on July 23, 2015. Doug’s equipment has an FMV of $500,000. Both Debbie and Doug use the equipment in their businesses.
a. What is Debbie’s basis for the office equipment received in the exchange and when does the holding period start for that equipment?
b. If Debbie and Doug are related taxpayers, explain what action could occur that would cause the exchange not to qualify as a like-kind exchange?