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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