Terry owns real estate with an adjusted basis 6. Research Problem. Terry owns re

Question

Terry owns real estate with an adjusted basis 6. Research Problem. Terry owns real estate with an adjusted basis of $600,000 and a fair market value of $1.1 million. The amount of the nonrecourse mortgage on the property is $2.5 million. Because of substantial past and projected future losses associated with the real estate development (occupancy rate of only 37% after three years), Terry deeds the property to the creditor.ltbr gta) What are the tax consequences to Terry?ltbr gtb) Assume the data are the same, except the fair market value of the property is $2,525,000. Therefore, when Terry deeds the property to the creditor, she also receives $25,000 from the creditor. What are the tax consequences to Terry?

Explanation / Answer

Solution-a

The calculation of the tax payers realized and recognized gain is as follows....

Realized and recognized gain = $1,100,000 - $600,000

Realized and recognized gain = $500,000

The conflict is resolved if they agree with the position of the IRS and the the $2,500,000 also includes the amount realized by the terry.

Solution-b

Realized and recognized gain = $2,525,000 - $600,000

Realized and recognized gain = $1,925,000

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