Benito Owns an Office Building He Purchased Five Years Ago

question 82

Essay

Benito owns an office building he purchased five years ago at a cost of $600,000. The property is currently worth $800,000, has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage.
Mitch owns an apartment complex he purchased three years ago at a cost of $600,000. The property is currently worth $750,000, has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage.
Benito and Mitch would like to exchange the properties and their respective mortgages. Answer the following questions regarding the exchange.
a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid?
b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.

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Definitions:

Sequential

Pertaining to or characterized by a sequence, in which events, processes, or items follow one after another in a particular order.

Concurrently

Doing multiple tasks or processes at the same time, often in the context of computing or project management.

Implementation Phase

is the stage in a project or strategy where plans are put into action or executed, following the planning stages and leading to the operational use of a product or system.

Planning Phase

The stage in a project or process during which objectives are set, strategies are developed, and tasks are defined.