Real Estate Taxation - 1031 Like-Kind Exchange, Taxation

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The taxpayer exchanges property in 2010 with a fair market value of $5,500,000 that has a basis of $750,000. The

property is also subject to a mortgage of $2,500,000. The taxpayer receives like-kind replacement property with a

value of $6,500,000 that is subject to a mortgage of $1,000,000. In order to balance the equities in the exchange, the

taxpayer contributes additional funds as needed.

Additional facts:

Adjusted basis of the relinquished property is composed of the following amounts:

Land 400,000

Building 450,000

Accumulated depreciation (100,000)

Adjusted basis 750,000

The fair market value of the land and building of the replacement property are as follows:

Land 2,500,000

Building 4,000,000

Total 6,500,000

Answer the following questions:

a) How much is the realized gain?

b) How much is the total boot, if any?

c) Is there mortgage boot? If so, how much?

d) How much new money was contributed by the taxpayer to balance the equities?

e) What is the total basis of the like-kind property received?

f) Provide the following basis* items immediately after the exchange for the like-kind property received:

Cost Basis

Accumulated

Depreciation Total

Land

(Old) Building

(New) Building

Totals

* Using the default method under IRC Reg. Sec. 1.168(i)-6

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