Question

Cindy exchanges investment real estate with Russell. Cindy purchased her realty two years ago for $280,000, and it is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell paid $80,000 cash for his property in 1999, and it is appraised at $150,000 on the day of the exchange. Russell assumes the debt on his new land and pays Cindy enough in cash to balance the exchange. What is Cindy's recognized gain (loss) on the exchange

Answer 1

The recognized gain (loss) on the exchange is $40000

Step-by-step explanation:

Solution

Cindy's recognized gain (loss) on the exchange

Particulars Explanation Amount ($)

(1) Amount realized Fair market value of real estate 420000

+ Cash received

= $320000 + $100000

(2) Adjusted basis Give in question 280000

(3) Realized Gain I - II 140000

Therefore, Cindy's recognized gain on the exchange = Realized Gain - Mortgage amount

= $140000 - $100000 = 40000