Babex Inc. and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r }
& \text { Babex } & O M G \
\text { FMV } & \$ 1,000,000 & \$ 825,000 \
\text { Adjusted tax basis } & \mathbf { 7 6 8 , 0 0 0 } & \mathbf { 5 1 4 , 5 0 0 } \
\text { Mortgage } & \mathbf { 1 7 5 , 0 0 0 } & - \mathbf { 0 } -
\end{array}$$ 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.

Question

Babex Inc. and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r } 
& \text { Babex } & O M G \
\text { FMV } & \$ 1,000,000 & \$ 825,000 \
\text { Adjusted tax basis } & \mathbf { 7 6 8 , 0 0 0 } & \mathbf { 5 1 4 , 5 0 0 } \
\text { Mortgage } & \mathbf { 1 7 5 , 0 0 0 } & - \mathbf { 0 } -
\end{array}$$ 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.

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 any liabilities assumed ($175,000), resulting in a basis of $689,500.

Babex Inc and OMG Company Entered into an Exchange of Real