Question

For each of these cases, find the gain realized, the gain recognized, and the new basis for each item. All real estate is for investment purposes except where the problem indicates otherwise.

1. Individual A traded his farm (basis $100,000, FMV $450,000) and a tractor (basis $10000, FMV $10,000) for Individual B's warehouse (basis $150,000). A also assumed B's mortgage of $200,000. FMV of Warehouse=660,000

2. Individual C traded an office building (basis $65,000, FMV $400,000) and $100,000 in cash for individual D's apartment building (basis $50,000). There is a $200,000 mortgage on the apartment building, and C will assume that mortgage.

Answer 1

Answer

1.

A's Farm

Gain Realised = $450,000 - $100,000 = $350,000. Gain recognised would be $350,000 and

the new basis would be $450,000.

A's Tractor

Gain Realised = $10,000 - $10,000 = NIL.

The new basis would be same as earlier i.e $10,000.

B's Warehouse

Gain Realised = $660,000 - $150,000 = $510,000.

B's mortgage = $200,000

Gain Recognised = $510,000 - $200,000 = $310,000

The new basis is $660,000.

2.

Particulars	Amount
FMV of the building	$400,000
Add Cash received	$100,000
Total	$500,000
Less: Basis of building exchanged	($50,000)
Less: Mortgate on apartment	($200,000)
The gain recognized	$250,000

Realised gain should be recognised to the extent of cash received $100,000.