Babex Inc. and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $\begin{array}{lll}&\text { Babex }&OMG\
\text {FMV }&\$1,000,000&\$825,000\
\text { Adjusted tax basis}&768,000&514,500\
\text {Mortgage }&175,000&-0-\
\end{array}$ Pursuant to the exchange, OMG assumed the mortgage on the Babex property. Compute OMG's gain recognized on the exchange and its tax basis in the property received from Babex.
A) $175,000 gain recognized; $514,500 basis in Babex property.
B) No gain recognized; $689,500 basis in Babex property.
C) No gain recognized; $514,500 basis in Babex property.
D) None of these choices are correct.

Question

Quizplus · Accepted Answer

OMG recognizes no gain because the exchange qualifies as a like-kind exchange under IRC Section 1031. The basis in the property received is the adjusted basis of the property given up ($514,500) plus any gain recognized (none) minus any money received (none) plus the mortgage assumed ($175,000), totaling $689,500.

Babex Inc and OMG Company Entered into an Exchange of Real