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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.
No loss or gain becuase the market value of both assets apartment building and ofiice building are equal
Calculation of Tim’s recognized gain or loss :
|Less: Accumulated depreciation||($369,000)|
|Net book value of asset||$237,000|
|Fair market value||$1,900,000|
|Net market value of asset||$756,000|
|Tim's Recognised ($756,000 -$237,000)||$519,000|
Calculation of Tim’s basis in the office building
|Fair market value||$1,817,000|
|Tim’s basis in the office building||$756,000|
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