Perry Inc.and Dally Company entered into an exchange of real property.Here is the information for the properties to be exchanged. Pursuant to the exchange,Perry assumed the mortgage on the Dally property,and Dally assumed the mortgage on the Perry property.Compute Dally's gain recognized on the exchange and its tax basis in the property received from Perry.
A)$30,000 gain recognized; $313,000 basis in the Perry property.
B)100,000 gain recognized; $383,000 basis in the Perry property.
C)$30,000 gain recognized; $283,000 basis in the Perry property.
D)None of the 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.   Pursuant to the exchange,Perry assumed the mortgage on the Dally property,and Dally assumed the mortgage on the Perry property.Compute Dally's gain recognized on the exchange and its tax basis in the property received from Perry.
A)$30,000 gain recognized; $313,000 basis in the Perry property. 
B)100,000 gain recognized; $383,000 basis in the Perry property. 
C)$30,000 gain recognized; $283,000 basis in the Perry property. 
D)None of the choices are correct.

Quizplus · Accepted Answer

To determine Dally's gain recognized on the exchange, we need to calculate the amount of boot received. Boot is any non-like-kind property received in the exchange, such as assumed mortgages or cash. In this case, Perry assumed the mortgage on the Dally property, which is considered boot received by Dally. The amount of boot received by Dally is $30,000 ($333,000 mortgage assumed by Perry minus $303,000 mortgage assumed by Dally).

Next, we need to determine Dally's tax basis in the property received from Perry. The tax basis equals the fair market value of the property received minus any boot received, plus any gain recognized. The fair market value of the property received from Perry is $280,000. Dally received $30,000 in boot, so the adjusted basis is $250,000. Dally recognized $30,000 in gain, so the tax basis in the property received is $280,000 ($250,000 + $30,000).

Therefore, D is incorrect and the correct answer is C: $30,000 gain recognized; $283,000 basis in the Perry property.

Perry IncAnd Dally Company Entered into an Exchange of Real Property