Kai owns an apartment building held for investment purposes. The apartment building is worth $500,000, although it is subject to a mortgage of $100,000. Kai's basis in the apartment building is $380,000. Kai exchanges the apartment building for an office building. The office building has an FMV of $350,000. Kai receives $50,000 cash in addition to receiving the office building, and the other
party assumes the apartment building mortgage. What is Kai's recognized gain on this exchange?
A) $0
B) $50,000
C) $120,000
D) $150,000
C) $120,000
The total value received in the exchange is $500,000 (the sum of the $350,000 FMV of the office building plus the $100,000 debt relief and the cash of $50,000). The realized gain is $120,000 ($500,000 - $380,000 adjusted basis). The taxpayer receives $150,000 of boot (debt relief and cash). She will recognize $120,000, the lesser of the $150,000 of boot and the $120,000 realized gain.
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