Question

Paul exchanges an apartment building in Wisconsin for Ringo's apartment building in Florida. Paul's building has...

Paul exchanges an apartment building in Wisconsin for Ringo's apartment building in Florida. Paul's building has a fair market value of $500,000, is encumbered by a $200,000 mortgage, and has a basis of $275,000. Ringo's building has a fair market value of $350,000, is encumbered by a $50,000 mortgage, and has a basis of $175,000. They each assume the mortgages on the properties received. What are Paul and Ringo's bases in the new buildings acquired?

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Answer #1

Parties

Paul ($)

Ringo ($)

Fair Value of building acquired in exchange

350000

500000

Less: Mortgages assumed

50000

200000

Bases in new building acquired

300000

300000

Note:

It has been assumed that new building received in exchange by Paul is that of Ringo’s building which has fair value of $350000 and an encumbered mortgage of $50000. In case of Ringo he has received the building apartment of Paul which has a fair value of $500000 with a mortgage of $200000. Thus, the new adjusted basis shall be calculated by subtracting the mortgage assumed from the amount of fair value relevant buildings received by Paul and Ringo.    

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