Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000 which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya's realized and recognized gain?
A) $310,000 realized and $310,000 recognized gain.
B) $310,000 realized and $0 recognized gain.
C) $110,000 realized and $110,000 recognized gain.
D) $110,000 realized and $0 recognized gain.
E) None of the above.

Question

Quizplus · Accepted Answer

Tonya's realized gain is calculated as the fair market value of the asset received ($560,000) minus the adjusted basis of the asset given ($250,000), resulting in a $310,000 realized gain. However, the recognized gain is limited to the boot received, which is the mortgage assumed by Tonya ($200,000) minus the fair market value of the yacht ($360,000), resulting in a $110,000 recognized gain.

Nancy and Tonya Exchanged Assets