Question

aRhonda owns an office building that has an adjusted basis of $45,000. The building is subject to a mortgage of $20,000. She transfers the building to Miguel in exchange for $15,000 cash and a warehouse with an FMV of $50,000. Miguel assumes the mortgage on the building. Required: What are LaRhonda realized and recognized gain or loss

Answer 1

LaRhonda realized and recognized gain or loss are: $45,000; $35,000.

a.  LaRhonda realized gain:

Using this formula

Realized gain = (Cash + Fair market value of building + Mortgage) - Adjusted basis

Let plug in the formula

Realized gain = ($15,000 + $50,000 + $20,000) - $45,000

Realized gain = $85,000-$45,000

Realized gain = $40,000

b. LaRhonda recognized gain or loss

Using this formula

Recognized gain = Cash + Mortgage

Let plug in the formula

Recognized gain =$15,000 +$20,000

Recognized gain= $35,000

Inconclusion LaRhonda realized and recognized gain or loss are: $45,000; $35,000.

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