Question

Submit your solution to the problem in an Excel file. Explain your answer as necessary and be sure your calculations are clearly shown.

Taxpayer Tim owns an apartment building. The building cost $1,750,000, and accumulated depreciation is $369,000. Fair market value is $1,900,000. The building is encumbered by a mortgage of $1,144,000. Tim exchanges the apartment building for an office building with fair market value $1,817,000, encumbered by a mortgage of $1,061,000. Both buildings are rental properties.

Required:

- What is Tim’s realized gain or loss?
- What is Tim’s recognized gain or loss, if any?
- What is Tim’s basis in the office building?

Answer #1

**Solution:**

a)

No loss or gain becuase the market value of both assets apartment building and ofiice building are equal

b)

Calculation of Tim’s recognized gain or loss :

Particulars | Amout |

Cost | $1,750,000 |

Less: Accumulated depreciation | ($369,000) |

WDV | $1,381,000 |

less: Mortgage | ($1,144,000) |

Net book value of asset | $237,000 |

Fair market value | $1,900,000 |

Less: Mortgage | ($1,144,000) |

Net market value of asset | $756,000 |

Tim's Recognised ($756,000 -$237,000) | $519,000 |

c)

Calculation of Tim’s basis in the office building

Particular | Amount |

Fair market value | $1,817,000 |

Less: Mortgage | ($1,061,000) |

Tim’s basis in the office building | $756,000 |

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