Tom Howard and Frank Pérez are good friends (and former college roommates). Each owns investment property in the other's hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX). To make their lives easier, they decide to exchange the investment properties. Under the terms of the exchange, Frank will transfer realty (20 acres of unimproved land; adjusted basis of $52,000; fair market value of $80,000) and Tom will exchange realty (25 acres of unimproved land; adjusted basis of $60,000; fair market value of $92,000). Tom's property is subject to a mortgage of $12,000 that willI be assumed by Frank. If an amount is zero, enter "0". a. What are Frank's and Tom's recognized gains? Frank's recognized gain is $ and Tom's recognized gain is $ b. What are their adjusted bases? Frank's adjusted basis is $ and Tom's adjusted basis is $ c. As an alternative, Frank has proposed that rather than assuming the mortgage, he will transfer cash of $12,000 to Tom. Tom would use the cash to pay off the mortgage. Complete an e-mail, advise Tom on whether this alternative would be beneficial to him from a tax perspective. Dear Tom: The alternative Frank has proposed would produce the following tax consequences: Amount realized $4 Less: adjusted basis Equals: realized gain Recognized gain
Tom Howard and Frank Pérez are good friends (and former college roommates). Each owns investment property in the other's hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX). To make their lives easier, they decide to exchange the investment properties. Under the terms of the exchange, Frank will transfer realty (20 acres of unimproved land; adjusted basis of $52,000; fair market value of $80,000) and Tom will exchange realty (25 acres of unimproved land; adjusted basis of $60,000; fair market value of $92,000). Tom's property is subject to a mortgage of $12,000 that willI be assumed by Frank. If an amount is zero, enter "0". a. What are Frank's and Tom's recognized gains? Frank's recognized gain is $ and Tom's recognized gain is $ b. What are their adjusted bases? Frank's adjusted basis is $ and Tom's adjusted basis is $ c. As an alternative, Frank has proposed that rather than assuming the mortgage, he will transfer cash of $12,000 to Tom. Tom would use the cash to pay off the mortgage. Complete an e-mail, advise Tom on whether this alternative would be beneficial to him from a tax perspective. Dear Tom: The alternative Frank has proposed would produce the following tax consequences: Amount realized $4 Less: adjusted basis Equals: realized gain Recognized gain
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Transcribed Image Text:Problem 13-75 (LO. 6, 9)
Tom Howard and Frank Pérez are good friends (and former college roommates). Each owns
investment property in the other's hometown (Tom lives in Kalamazoo, MI; Frank lives in
Austin, TX). To make their lives easier, they decide to exchange the investment properties.
Under the terms of the exchange, Frank will transfer realty (20 acres of unimproved land;
adjusted basis of $52,000; fair market value of $80,000) and Tom will exchange realty (25
acres of unimproved land; adjusted basis of $60,000; fair market value of $92,000). Tom's
property is subject to a mortgage of $12,000 that will be assumed by Frank.
If an amount is zero, enter "0".
a. What are Frank's and Tom's recognized gains?
Frank's recognized gain is $
, and Tom's recognized gain is $
b. What are their adjusted bases?
Frank's adjusted basis is $
and Tom's adjusted basis is $
c. As an alternative, Frank has proposed that rather than assuming the mortgage, he will
transfer cash of $12,000 to Tom. Tom would use the cash to pay off the mortgage.
Complete an e-mail, advise Tom on whether this alternative would be beneficial to him from
a tax perspective.
Dear Tom:
The alternative Frank has proposed would produce the following tax consequences:
Amount realized
Less: adjusted
basis
Equals: realized
gain
Recognized gain
![Because the cash
treated as boot, the recognized gain is
if Frank assumes the mortgage. Your adjusted basis for the realty received is $
. As a result, the tax consequences under Frank's alternative proposal are
under the original proposal.
d. Assuming that Tom and Frank proceed with the original exchange [rather than the
alternative in part (c)], complete Form 8824 (Parts I and III) for Tom. Assume that the
exchange occurs on September 16, 2019 (Tom acquired his 25-acre parcel on February 15,
2011). Tom's Social Security number is 123-45-6789.
Enter all amounts as positive numbers. However, if required, use the minus sign to
indicate a loss. If an amount box does not require an entry or the answer is zero,
enter "0".](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6d702b96-16c9-42c6-953e-90c469a3b56f%2F144a3df1-fc37-49eb-8c45-651dd45bbbef%2Fqq2qssu_processed.png&w=3840&q=75)
Transcribed Image Text:Because the cash
treated as boot, the recognized gain is
if Frank assumes the mortgage. Your adjusted basis for the realty received is $
. As a result, the tax consequences under Frank's alternative proposal are
under the original proposal.
d. Assuming that Tom and Frank proceed with the original exchange [rather than the
alternative in part (c)], complete Form 8824 (Parts I and III) for Tom. Assume that the
exchange occurs on September 16, 2019 (Tom acquired his 25-acre parcel on February 15,
2011). Tom's Social Security number is 123-45-6789.
Enter all amounts as positive numbers. However, if required, use the minus sign to
indicate a loss. If an amount box does not require an entry or the answer is zero,
enter "0".
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education