Y exchanges a rent house, which he owned outright (i.e., no liabilities existed), for an apartment complex.The apartment complex was subject to a $150,000 mortgage, and to make the deal even, Y received $3,400 cash.Y must recognize part or all of the realized gain on this exchange.

Question

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Y must recognize the realized gain on this exchange, which is the difference between the fair market value of the rent house and the fair market value of the apartment complex, plus any cash received. In this case, Y received $3,400 cash and exchanged a property with no liabilities for a property with a $150,000 mortgage, indicating a gain that must be recognized for tax purposes.

Y Exchanges a Rent House, Which He Owned Outright (I