REG MCQ

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• #3002244
jess6645
Participant

I'm running through the recently released AICPA question and I am just not understanding why the answer is 15K answer D.
A taxpayer owned a rental home with an \$85,000 fair
market value, a \$70,000 adjusted basis, and a \$60,000
mortgage. The taxpayer exchanged the home for \$12,000
in cash plus a rental property with a \$65,000 fair market
value and a \$52,000 mortgage. What amount of gain, if
any, must be recognized by the taxpayer on the
exchange?
No.7
a. \$0
b. \$8,000
c. \$12,000
d. \$15,000

Netting the two mortgages (60-52) is 8,000 and the cash received is 12K is 20K how do I get to 15K from there thanks

#3002310
Lily
Participant

Hello,

first, calculate what you received cash 12,000
+ FMV property 65,000
less the debt 52,000
_________________________________________________
you got 25,000

less BV of your property 70,000
plus relief of debt 60, 000
________________________________________________
realized gain 15,000

Recognized gain is the lesser of Realized gain 15, 000 or boot received 60, 000 (debt relief in this case) = 15,000

New basis = BV given+Gain recognize + boot paid or liability received-Boot received or liability paid
= 70,000+15,000+52,000-60,000=77,000

Hope this helps.

#3002331
Lily
Participant

sorry, boot received is the sum of debt relief 60, 000 + cash 12,000 ( I forgot the cash) = 72,000

New basis = 65,000

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