Taxpayer T owns an office building worth $950,000, encumbered bya mortgage of $710,000. His original cost was $830,000, and he hastaken depreciation deductions of $185,000 on the building.
T wants to exchange his building for another office buildingworth $800,000. He will assume the existing mortgage of $580,000 onthe new building.
(This is a practice problem for an exam, please show work so Ican understand the problem and how to get the correct answer.)
- As stated, would this be a fair arms-length exchange? If not,who should be required to pay cash boot, and how much?Explain.
- Assuming the exchange is made under the terms of your answer to#1, compute the following for T, showing all calculations:
a. Realized gain
b. Recognized gain
c. Basis in the new building
