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Marge owns land and a building (held for investment) with an adjusted basis of $75,000 and a fair market value of $250,000. The property is subject to a mortgage of $400,000. Because Marge is in arrears on the mortgage payments, the creditor is willing to accept the property in return for canceling the amount of the mortgage.
a. How can the adjusted basis of the property be less than the amount of the mortgage?
b. If the creditor's offer is accepted, what are the effects on the amount realized, the adjusted basis, and the realized gain or loss for Marge?
c. Does it matter in (b) if the mortgage is recourse or nonrecourse?

Sagot :

abiolataiwo2015

Answer:

A. The amount deducted for Depreciation may be higher than the amortized amount of the mortgage principal.

Decrease in the value of the property after they granted the mortgage

Bi $400,000

ii. $75,000

iii. $325,000

C.No

Explanation:

a. The adjusted basis of the property can be tend to be lesser than the amount of the mortgage due to the fact that in the beginning of an asset life the amount that was deducted for Depreciation may be more higher than the amortized amount of the mortgage principal .

Secondly the adjusted basis of the property can be tend to be lesser than the amount of the mortgage when their is Decrease in the value of the property after they granted the mortgage .

Lastly the adjusted basis of the property can be tend to be lesser than the amount of the mortgage when the fair market value of Property are been given instead of the Adjusted basis of the property.

b. Calculation for the effects on the amount realized, the adjusted basis, and the realized gain or loss for

i. Based on the information given the amount that was realized will be the amount of $400,000

ii. Based on the information given the Adjusted basis will be the amount of $75,000

iii. Realized gain=$400,000 − $75,000

Realized gain= $325,000

c.No it don't not matter if the mortgage is recourse or nonrecourse since the amount that was realized was the amount of $400,000 and

to justify the nonrecourse mortgage is that the taxpayer has already enjoy some benefit when the mortgage was acquired due to the increase in Adjusted basis of the property.

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