James corporation exchanges a building (fair market value = $800,000,adjusted basis = $600,000)that has a $100,000 mortgage for another building owned by Pete Corporation (fair market value = $1,100,000,adjusted basis = $600,000)that is encumbered by a $400,000 mortgage.Each party assumed the mortgage on the building received.What are James's and Pete's realized gains on this exchange,respectively?
A)$200,000,$500,000
B)$200,000,$600,000
C)$500,000,$600,000
D)$500,000,$500,000
E)None of the above

Question

Quizplus · Accepted Answer

James's realized gain is calculated as the fair market value of the building received ($1,100,000) minus the adjusted basis of the building given up ($600,000), resulting in a $500,000 gain. However, since James also assumes a $400,000 mortgage, the net gain is $200,000. Pete's realized gain is the fair market value of the building received ($800,000) minus the adjusted basis of the building given up ($600,000), resulting in a $200,000 gain. However, since Pete also assumes a $100,000 mortgage, the net gain is $500,000.

James Corporation Exchanges a Building (Fair Market Value = $800,000,adjusted