Question

Ava owned a building held for investment worth $800,000 in which her basis was $545,000. Ava owed a $320,000 mortgage on the building. She exchanged the building for a warehouse owned by Caddy Corp. which she intends to use in her business. Caddy assumed Ava’s mortgage.

Caddy used the warehouse in its business and it intends to use Ava’s land in its business. Caddy’s basis in the warehouse was $482,000. Caddy owed a $365,000 mortgage on the building that Ava assumed.

Caddy and Ava are completely unrelated.

Required: Input a $ answer for each requirement, but SHOW COMPUTATIONS for partial points.  

1) What is the fair value of Caddy’s warehouse that was transferred to Ava?

2) What is Ava’s realized gain (loss) on the transaction?

3) What is Ava’s recognized gain (loss)?

4) What is Ava’s basis in the warehouse?

5) What is Caddy’s realized gain (loss) on the transaction?

6) What is Caddy’s recognized gain (loss)?

7) What is Caddy’s basis in the building?

Answer 1

Answer :

(1). compute the fair value of warehouse as follows

Particulars	Amount
fair value of building	$800,000
Deduct : Mortgage on the building	$320,000
Fair value of warehouse transferred	$480,000

(2). Compute realized gain (loss) on the transaction for company A as follows

Compute realized gain (loss)	Company A
FMV of like -kind property received	$480,000
Add : Debt relief	$320,000
	$800,000
Less : Debit assumed	(365,000)
Net consideration received	$435,000
Less : Adjusted basis of property given	$545,000
Realized gain (loss)	($110,000)

(3). Compute recognized gain (loss) on the transaction for company A

Compute Boot received
Debit relief	$320,000
Add: Cash received	$0
Boot received	$320,000
Lesser of gain or boot received	$0

(4) Compute company A's basis in the warehouse as follows

Compute basis of New property
Adjusted basis of property given	$545,000
Add: Boot given	$365,000
Add: Gain recognized	$0
Less : Boot received	($320,000)
Basis for new property	$590,000

(5) Compute realized gain (loss) on the transaction for company C as follows

Company realized gain (loss)	Company C
FMV of like - kind property received	$800,000
Add: Debt relief	$365,000
	$1,165,000
Les : Debt assumed	($320,000)
Net consideration received	$845,000
Less: Adjusted basis of property given	$482,000
Realized gain (loss)	$363,000

(6) Compute realized gain (loss) on the transaction for company C as follows

Compute Boot received
Debt relief	$365,000
Add: Cash received	$0
Boot received	$365,000
Compute gain recognized
Lesser of gain or boot received	$363,000

(7) Compute C's basis in the warehouse as follows

Compute basis for new property
Adjusted basis for property given	$482,000
Add: Boot given	$320,000
Add: Gain recognized	$363,000
Less ; Boot received	($365,000)
Basis for new property	$800,000