Elastigirl owns a piece of real property with an adjusted basis of $480,000 and

Question

Elastigirl owns a piece of real property with an adjusted basis of $480,000 and a fair market value of $1,000,000 and which is subject to a $400,000 mortgage. She exchanges the real property for an office building owned by Screenslaver. The building has an adjusted basis of $400,000 and a fair market value of $500,000. Screenslaver assumes Elastigirl’s mortgage on the land and transfers stock with an adjusted basis of $150,000 and a fair market value of $100,000 to Elastigirl as part of the exchange.

a. What is Elastigirl’s realized and recognized gain or loss on the exchange?

b. What is Screenslaver’s realized and recognized gain or loss on the exchange?

c. What are the parties’ adjusted bases for each piece of property received?

Explanation / Answer

In case of exchange of assets, incoming asset shall be recognised at the its Fair value.

Elasticgirl's Realized & recognized gain:- Debit Amt Credit Amt Mortagage A/c Dr         4,00,000 Office building A/c Dr         5,00,000 Stock A/c Dr         1,00,000 To Real property          4,80,000 To Realized gain          5,20,000 Screen salver's Realized & recognized gain:- Debit Amt Credit Amt Real property A/c Dr       10,00,000 To Office building          4,00,000 To Mortagage                   4,00,000 To Stock                              1,50,000 To Realized gain                 50,000

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