What is the basis of andrew and joe in replacement property

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Question - Andrew entered into a sale agreement with Joe, who agreed to give up his property, which is worth $1.8M on the day of the agreement was signed. Joe purchased his property 5 years ago for $500,000, and he has been using it as his primary resident since he purchased the house. Joe is currently using his property as collateral for a mortgage of $700,000. On the other hand, Andrew is going to transfer his rental property to Joe. Andrew purchased his property 3 years ago for $600,000. The current market price is $1.4M dollars. Andrew agreed to give Joe additional $200,000 cash, but he also notified Joe that he had a mortgage on the property for $500,000.

Under section 1031

What is the basis of Andrew and Joe in replacement property?

What are tax consequences for Andrew and Joe (if applicable)? Assuming capital gain rate is 20%.

Reference no: EM132033597

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