A Glimpse of The Loadass Lawyer

Sample Income Tax Law Problem and Answer. Enjoy...

Nonrecognition: Dudley wished to cash in one of his primary investments, a 90 unit apartment building in Reno which was subject to 300K first mortgage, had a 1.5 million FMV and a adjusted basis of 500K. He wants to maximize cash received but minimize gain recognition
a. Little offered to exchange is unencumbered office building with a 1.2 million FMV and a 1.5 million adjusted basis. What results to Dudley?

i. If Dudley were to sell for cash, he would sell for 1.2 million in cash and 0.3 mil. in debt relief.
ii. His A/R would be 1.5 million → Cash plus the debt
iii. His gain realized would be 1 million → AR – Basis
iv. In the exchange, His AR would be 1.5 million → cash plus the debt discharge
v. His gain realized would be 1 million → AR – basis
vi. His gain recognized would be 300K → The lessor of the boot or the gain realized
vii. His basis would be 500K → 500K – 300K + 300K

The final is tuesday, wish me luck... then i'll be free for three weeks. I can't wait