Question

7. Zelda owns a building. Zelda’s basis in the building is $300,000 and the fair market value is $1,000,000. There is a mortgage on the building of $250,000. Homer owns a building worth $750,000 and his basis is $800,000. Zelda and Homer exchange buildings and Homer assumes Zelda’s mortgage. How much gain or loss will each of them recognize on the transaction? What will their basis be in the property they receive

Answer 1

Calculation of Gain / ( loss ) for Zelda:   

Particulars	Amount ( in $ )
Worth of building received	7,50,000
Mortgage of building given	2,50,000
Total	10,00,000
( - ) Basis of Building given	3,00,000
Amount of gain	7,00,000
Basis of property ( building ) received in exchange is $ 8,00,000

Calculation of Gain / ( Loss ) for Homers:

Particulars	Amount ( in $ )
FMV of building received	10,00,000
( - ) Basis of Building given	8,00,000
( - ) Mortgage of building taken	2,50,000
Amount of loss	-50,000

Basis of property ( building ) received in exchange is $ 3,00,000