Worth $800,000,has an Adjusted Basis of $300,000 and Is Encumbered

question 17

Essay

worth $800,000,has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage.
Benito owns an office building he purchased five years ago at a cost of $600,000.The property is currently
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:

Market Equilibrium

A condition in which the quantity of a product demanded by consumers equals the quantity supplied by producers, leading to a stable market price.

Market Equilibrium

The point where the supply of goods matches demand, resulting in a stable price.

Excess Demand

A market situation where the quantity demanded of a good exceeds the quantity supplied at a current price, leading to shortages.

Excess Supply

A situation in a market where the quantity of a good supplied is greater than the quantity demanded at the current price.