Tax Teaser

[S T]

A tax teaser published in the local CSEA (Orange Co Chapter) publication this month.
Curious to see! comments would be welcomed as to why you post which answer.

Kayla exchanged her unimproved land with an adjusted basis of $80,000 and a fair market value of $130,000 for unimproved land with a fair market value of $100,000 and $10,000 cash. Kayla also paid $5,000 in closing costs.

The unimproved land that Kayla gave up was subject to a $30,000 mortgage for which she was liable. The other party assumed this mortgage. What is Kayla's realized gain on this exchange.

A: $40,000
B: $55,000
C: $35,000
D: $25,000

[JG EA]

I'll say

the answer is D.

JG

[DTS]

Teaser

I know this one!

Dennis

[jainen]

reported wrong

Realized gain of $55,000, and it seems the FMV is being reported wrong.

[Jesse]

Realized gain $55,000
Recognized gain $25,000

[jimmcg]

Agree with Jainen realized gain would simply be all economic benefits received, FMV 100,000 plus Cash 10,000 plus Mortgage assumed by buyer 30,000 less adjusted basis of property given up 80,000 and closing costs paid 5,000 which equals 55,000. Seems to me recognized gain would be the lessor of the realized gain or boot received (cash and mortgage assumption by buyer) or 40,000.

[jainen]

recognized gain

>>recognized gain would be the lessor of the realized gain or boot received<<

There is absolutely nothing in the original post to suggest this transaction qualifies for Section 1031 treatment. You can not ASSUME that either the old or new property was held for investment or business use.

[jimmcg]

Agree, perhaps I should have said "Seems to me if it qualifies for 1031 treatment............................."

[Gretel]

I say C is the right answer.

She received 10,000 cash plus 30,000 mortgage relief minus 5,000 cost of sale = 35,000.

Since I am the only one I probably made a mistake.

[Black Bart]

Teaser

$35,000 for the Orange County Chopper Chapter.