Belinda exchanges investment real estate with Russell. Belinda's adjusted basis in her two-year old property is $280,000. The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell assumes that debt. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell pays Belinda enough in cash to balance the exchange. What is Belinda's basis in the new land?
A)$20,000
B)$150,000
C)$280,000
D)$320,000

Question

Quizplus · Accepted Answer

Belinda's basis in the new land is calculated by taking her original basis in the property she gave up ($280,000), adding any cash she paid (in this case, Russell balanced the exchange with cash, so Belinda paid $0), and subtracting any cash she received. Since Russell assumed Belinda's $100,000 debt and the properties had a difference in value ($320,000 - $150,000 = $170,000), Russell had to pay Belinda $70,000 in cash to balance the exchange ($170,000 difference minus the $100,000 debt assumed). Therefore, Belinda's basis in the new property is her original basis minus the cash received, which is $280,000 - $70,000 (cash received) = $210,000. However, none of the provided options match this calculation, indicating a mistake in my explanation. The correct basis calculation should consider the fair market value of the property received and adjustments for any cash received or paid. Given the options and the scenario, the correct basis for Belinda in the new land should reflect the fair market value of the property she received adjusted for the exchange specifics, but without the correct calculation details provided in the options, there seems to be a misunderstanding in the explanation process.

Belinda Exchanges Investment Real Estate with Russell