Sarah exchanges investment real estate with Russell. Sarah'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 Sarah enough in cash to balance the exchange. What is Russell's basis in the new land?
A)$80,000
B)$180,000
C)$250,000
D)$320,000
E)None of the above

Question

Quizplus · Accepted Answer

Russell's basis in the new land will be the sum of the cash paid and the adjusted basis of the property exchanged.

Cash paid: $80,000 (given in the question)

Adjusted basis of the property exchanged: $280,000 (given in the question)

Therefore, Russell's basis in the new land will be $80,000 (cash) + $280,000 (adjusted basis of property) = $360,000.

Note that the fair market value of the property exchanged ($320,000) and the mortgage assumed by Russell ($100,000) are not relevant for calculating Russell's basis in the new land.

Sarah Exchanges Investment Real Estate with Russell