Alice owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000. On April 1, 2018, Alice sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000. What is Alice's amount realized on this sale?
A) $685,000.
B) $800,000.
C) $840,000.
D) $860,000.
E) None of the above.

Question

Quizplus · Accepted Answer

Alice's amount realized is the sum of the cash, the note, and the fair market value of the property she receives:

$325,000 cash + $300,000 note + $60,000 property = $685,000

However, because the land was subject to a mortgage of $175,000, Alice must subtract that amount from the amount realized:

$685,000 - $175,000 = $510,000

Therefore, Alice's amount realized on the sale is $510,000, and the closest answer choice is D) $860,000.

Alice Owns Land with an Adjusted Basis of $305,000, Subject