Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r }
& \text { Johnson } & \text { CdK } \
\text { FMV } & \$ 900,000 & \$ 675,000 \
\text { Adjusted tax basis } & \mathbf { 5 9 3 , 0 0 0 } & \mathbf { 4 6 2 , 0 0 0 } \
\text { Mortgage } & \mathbf { 2 0 0 , 0 0 0 } & - 0 -
\end{array}$$ Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute Johnson's gain recognized on the exchange and its tax basis in the property received from C&K.

Question

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r } 
& \text { Johnson } & \text { CdK } \
\text { FMV } & \$ 900,000 & \$ 675,000 \
\text { Adjusted tax basis } & \mathbf { 5 9 3 , 0 0 0 } & \mathbf { 4 6 2 , 0 0 0 } \
\text { Mortgage } & \mathbf { 2 0 0 , 0 0 0 } & - 0 -
\end{array}$$ Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute Johnson's gain recognized on the exchange and its tax basis in the property received from C&K.

Quizplus · Accepted Answer

Johnson's gain recognized is $225,000, which is the sum of the cash received ($25,000) and the mortgage assumed by C&K ($200,000). The basis in the C&K property is Johnson's original basis ($593,000) plus the gain recognized ($225,000) minus the cash received ($25,000), resulting in a basis of $793,000. However, the correct basis calculation should be $593,000, as the gain recognized does not affect the basis in this context.

Johnson Inc Pursuant to the Exchange, C&K Paid $25,000 Cash to Johnson