Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged.
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property.
-Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.
A) No gain recognized; $410,000 basis in the Dally property.
B) No gain recognized; $440,000 basis in the Dally property.
C) $100,000 gain recognized; $410,000 basis in the Dally property.
D) None of the choices are correct.

Question

Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged.
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property. 
-Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.
A) No gain recognized; $410,000 basis in the Dally property.
B) No gain recognized; $440,000 basis in the Dally property.
C) $100,000 gain recognized; $410,000 basis in the Dally property.
D) None of the choices are correct.

Quizplus · Accepted Answer

Perry treats its $30,000 net assumption of debt as boot paid in the exchange. Its basis in the Dally property is $440,000 ($410,000 substituted basis + $30,000 boot paid).
 $\begin{array}{lrc} 
& \text { Peny } & \text { Dally } \
\text { FMV } & \$ 500,000 & \$ 530,000 \
\text { Adjusted tax basis } & 410,000 & 283,000 \
\text { Mortgage } & 70,000 & 100,000
\end{array}$

Perry Inc and Dally Company Entered into an Exchange of Real