Glen owns a building that is used in business. The building is worth $200,000, but is subject to a mortgage of $40,000. Glen's basis in the building is $120,000. Glen exchanges the building for investment land worth $150,000 plus $10,000 cash. In addition, the other party assumes the mortgage which will be held for investment. Glen must recognize a gain of
A) $0.
B) $10,000.
C) $50,000.
D) $80,000.
C) $50,000.
The total value received in the exchange is $200,000 (the sum of the $150,000 FMV of the land plus the $40,000 debt relief and the cash of $10,000). The realized gain is $80,000 ($200,000 - $120,000 adjusted basis). The taxpayer receives $50,000 of boot (debt relief and cash). He will recognize $50,000, the lesser of the $50,000 of boot and the $80,000 realized gain.
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