Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark, NJ.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

Question

Quizplus · Accepted Answer

To calculate the recognized gain or loss in the exchange, we need to compare the adjusted basis of the relinquished property (Dena's farm land) with the fair market value of the acquired property (Chris's office building).

Relinquished property (farm land):
Adjusted basis = $480,000
Mortgage on the land = $400,000

Therefore, the total value of the relinquished property is:
$480,000 + $400,000 = $880,000

Acquired property (office building):
Fair market value = $900,000

Since the fair market value of the acquired property ($900,000) is higher than the total value of the relinquished property ($880,000), there is no recognized gain for Dena. However, she will have to recognize the amount of the mortgage she is relieved of ($400,000) as gain. Therefore, the recognized gain for Dena is $400,000.

Dena Owns 500 Acres of Farm Land in Southeastern Maryland