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    Tax effects of sale or exchange of a commercial building

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    Audrey exchanges a warehouse with Dixon for an office building. Audrey's adjusted basis for her warehouse is $500,000. The FMV of Dixon's office building is $545,000. Audrey' property has a $100,000 mortgage that Dizon assumes.
    a. Calculate Audrey's realized and recognized gain or loss.
    b. What is her adjusted basis for the office building?
    c. As an alternative, Dizon has proposed that he will transfer cash of $100,000.

    Rather than assume the mortgage. Audrey would use the cash to pay off the mortgage. Advise Audrey on whether this alternative would be beneficial to her from a tax perspective.

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    Solution Preview

    a. The realized gain is calculated as FMV of property received of $545,000, plus assumption of debt of $100,000 = $645,000 less the adjusted basis ...

    Solution Summary

    The solution explains the three scenarios for selling or exchanging the building including the tax ramifications to each.