Reference no: EM132330045

Question

(a) Larry purchased a parcel of land for $30,000 and constructed an apartment building on it at a cost of $570,000 (total basis in land and building = $600,000). He paid the entire purchase price and construction costs with the proceeds of a nonrecourse loan that was secured by a mortgage on the property.

Two years later, when Larry's basis in the land and apartment building was $540,000 (due to $60,000 of depreciation on the building), the fair market value of the land and building was $750,000 and the outstanding balance on the mortgage was still $600,000, Larry sold the land and building, subject to the mortgage, to Moe for $150,000 in cash. Moe did not expressly agree to assume the mortgage. (He took the property subject to the mortgage).

How much gain must Larry recognize?

What is its character?

What is Moe's basis in the building?

(b) 1. What would be the tax consequences to Larry if instead of selling the land and apartment building, he gave it to his Son, Curly (subject to the mortgage)?

2. What would be Curly's basis in the property?