Question

In: Accounting

Frances exchanges an apartment building complex, Forestview, with a fair market value of $500,000, subject to...

Frances exchanges an apartment building complex, Forestview, with a fair market value of $500,000, subject to a mortgage of $200,000, for Oceanview, an apartment building complex owned by Gayle. The fair market value of Oceanview is $500,000, and it is subject to a mortgage of $250,000. Gayle also transfers $50,000 of cash to Frances. Frances’ basis in Forestview is $150,000. Gayle’s basis in Oceanview is $100,000. How much gain is realized and recognized by Frances and Gayle? What are Frances’ and Gayle’s respective bases in the property received by each?

Expert Solution

How much gain is realized and recognized by Frances and Gayle?

The realized gain by Frances

The amount received by frances is as under

Building complex oceanview with FMV of $500,000
Cash of $50,000
Net mortgage boot of ($50,000)

The amount given up by Frances

The basis of in forest view of $150,000

Realized gain = $500,000 +$50,000-$50,000-$150,000

=$350,000

Recognized gain = cash received + net debt relief

=$50,000 - $50,000

=$0

The realized gain by Gayles

The amount received by Gayles is as under

Building complex forestview with FMV of $500,000
Net mortgage boot of $50,000

The amount given up by Frances

The basis of in oceanview of $100,000

Realized gain = $500,000 +$50,000-$100,000

=$450,000

Recognized gain = net debt relief or realized gain whichever is less

=$50,000 net debt relief

=$50,000

What are Frances’ and Gayle’s respective bases in the property received by each?

The substitute basis of acquired property. The formula is given below

Substitute basis of acquired property = Fair market value of property received – (realized gain – recognized property)

Calculation of Substitute basis of acquired property for Frances

= Fair market value of property received – (realized gain – recognized property)

= $500,000 –($350,000-$0)

=$150,000

The Substitute basis of acquired property for Frances is $150,000

Substitute basis of acquired property for Gayle’s

= Fair market value of property received – (realized gain – recognized property)

= $500,000 –($450,000-$50,000)

=$$500,000-$400,000

=$100,000

The Substitute basis of acquired property for Gayle’s is $100,000

ekkarill92 answered 1 year ago

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