Babex Inc. and OMG Com e of real property. Here is the information for the prope

Question

Babex Inc. and OMG Com e of real property. Here is the information for the properties to be exchanged: pany entered into an exchang Babex 1,000,000 OMG 825,000 Fair Market Value Adjusted Tax Basis Mortgage 768,00 37 175,000 51 ?11,ao -0 Pursuant to the exchange, OMG assumed the mortgage on the Babex property A) Compute Babex's gain realized and gain recognized on the exchange and its tax basis in the property acquired from OMG. (7 points) tor eavxC in B) Compute OMG's gain realized and gain recognized on the exchange and its tax basis in the property acquired from Babex. (7 points) bsnoa

Explanation / Answer

1. Babex's gain realized and recognized Fair market value $1,000,000 Less: Adjusted tax basis $768,000 Realized Gain $232,000 Boot received $175,000 Recognized gain $175,000 Mortgage assumed by OMG on Babex's property is treated as boot received Tax basis in OMG property is $768,000 2. OMG's gain realized and recognized Fair market Value $825,000 Less: Adjusted tax basis $514,000 Realized gain $311,000 No recognized gain Tax basis in Babex property is $689,000 ($514000 + $175000) Mortgage assumed by OMG on Babex property is treated as boot paid thus tax basis is adjusted for boot paid

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