Question

Fred owns land with an adjusted basis of $60 and a fair market value of $100. The land is subject to a mortgage of $4. Fred sells the land to Dell who gives Fred $96 in cash and assumes the mortgage. 1) Does Fred realize gain/loss on the transaction and if yes how much? 2) Does Fred recognize gain/loss on the transaction and if yes how much?

Answer 1

Fair Market Value of the LAnd = $ 100

Less: Adjusted Basis = $ 60

Gain on the transaction = $ 40

So Fred recognize the gain of $ 40.

Answer = $ 40.

Note: Land is subject to mortgage of $ 4 which is included in the cost of land or in the adjusted basis. So the this amount is paid by the Dell seprately so total cost to Dell is $ 96 + $ 4 = $ 100 and this is same to market value of the land.

And there is difference in market value and adjusted value = Gain on the trannsaction = $ 100 - $ 60 = $ 40