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:

1. What is Tim’s realized gain or loss?
2. What is Tim’s recognized gain or loss, if any?
3. 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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