Taxpayer exchanges a building (FMV $500,000, Basis $200,000, Mortgage $100,000) for a new building (FMV $400,000). The other party assumes the $100,000 mortgage. What is the recognized gain?

Answer options:

$300,000

$100,000

$200,000

How to approach this question

Net Debt Relief is Boot. Taxpayer is relieved of $100k debt. This is treated as receiving $100k cash. Realized Gain = $300k. Recognized Gain = Lesser of Realized or Boot ($100k).

Full Answer

C.$100,000✓ Correct

IRC §1031. Liability relief is treated as boot received. $100,000 boot triggers $100,000 of the realized gain.

Common mistakes

Ignoring debt relief.

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