Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $\begin{array}{lccc}
& \text { Perry } & \text { Dally } \
\text { FMV } & \$ 500,000 & \$ 530,000 \
\text { Adjusted tax basis } & 410,000 & 283,000 \
\text { Mortgage } & 70,000 & 100,000
\end{array}$ Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property. Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.
A) No gain recognized; $410,000 basis in the Dally property.
B) No gain recognized; $440,000 basis in the Dally property.
C) $100,000 gain recognized; $410,000 basis in the Dally property.
D) None of these choices are correct.

Question

Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $\begin{array}{lccc} 
& \text { Perry } & \text { Dally } \
\text { FMV } & \$ 500,000 & \$  530,000 \
\text { Adjusted tax basis } & 410,000 & 283,000 \
\text { Mortgage } & 70,000 & 100,000
\end{array}$ Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property. Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.
A) No gain recognized; $410,000 basis in the Dally property.
B) No gain recognized; $440,000 basis in the Dally property.
C) $100,000 gain recognized; $410,000 basis in the Dally property.
D) None of these choices are correct.

Quizplus · Accepted Answer

Perry's gain recognized is zero because the exchange qualifies as a like-kind exchange under IRC Section 1031. The basis in the Dally property is calculated as Perry's original basis ($410,000) plus the net mortgage relief ($30,000), resulting in a $440,000 basis.

Perry Inc and Dally Company Entered into an Exchange of Real