Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r }
& \text { Perry } & \text { Dally } \
\text { FMV } & \mathbf { \$ 5 0 0 , 0 0 0 } & \mathbf { \$ 5 3 0 , 0 0 0 } \
\text { Adjusted tax basis } & \mathbf { 4 1 0 , 0 0 0 } & \mathbf { 2 8 3 , 0 0 0 } \
\text { Mortgage } & \mathbf { 7 0 , 0 0 0 } & \mathbf { 1 0 0 , 0 0 0 }
\end{array}$$ 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 above

Question

Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $$\begin{array} { l r r } 
& \text { Perry } & \text { Dally } \
\text { FMV } & \mathbf { \$ 5 0 0 , 0 0 0 } & \mathbf { \$ 5 3 0 , 0 0 0 } \
\text { Adjusted tax basis } & \mathbf { 4 1 0 , 0 0 0 } & \mathbf { 2 8 3 , 0 0 0 } \
\text { Mortgage } & \mathbf { 7 0 , 0 0 0 } & \mathbf { 1 0 0 , 0 0 0 }
\end{array}$$ 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 above

Quizplus · Accepted Answer

To calculate Dally's gain recognized, we first need to calculate the realized gain on the exchange. Dally received property with a FMV of $530,000 but with a tax basis of only $283,000. This means that Dally realized a gain of $247,000 ($530,000 - $283,000). However, Dally also assumed a mortgage with a balance of $100,000. This reduces the amount of gain recognized to $147,000 ($247,000 - $100,000).

Dally's tax basis in the property received will be the adjusted tax basis of the Perry property ($410,000) plus the gain recognized ($147,000), minus the mortgage assumed ($70,000). This gives a tax basis in the property received of $487,000 ($410,000 + $147,000 - $70,000).

Therefore, the correct choice is C, $30,000 gain recognized; $283,000 basis in the Perry property.

Perry Inc and Dally Company Entered into an Exchange of Real