ExpertMedium1 markMultiple Choice
CPA · Question 59 · Area IV: Property Transactions
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?
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:
A.
$0
B.
$300,000
C.
$100,000
D.
$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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