[April94]

Hi all, can someone please help me with the question below?

On October 1, 2019, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2019?

The answer is $25K. I thought the answer was $0 because I added the net debt relief (-25K) + cash received (25K).

Do you only add the debt relief if the amount is positive?

[CH89]

You are correct in netting the debt relief, however, the excess cannot reduce other boot received, in this case the cash received. Since you cannot reduce the cash received, you're realized portion is the 25k, the cash received. I hope this helps clarify.

Here's a small portion taken out of my review course: “Mortgage relief is treated as boot received. If the taxpayer assumes the other party's mortgage that is treated as boot given. Mortgage relief can be offset by mortgage assumed. However, if the taxpayer assumes a larger mortgage than he or she gives up, this excess reduces his amount realized, but it does not reduce other boot received (cash or non like-kind property).”

[April94]

Thank you! That was very helpful 🙂

[Author]

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