FINAL EXAM

This examination consists of two problems. Please explain all of your responses; include authority and reasoning.

Problem 1. Frances exchanges an apartment building complex, Forestview, with a fair market value of $500,000, subject to a mortgage of $200,000, for Oceanview, an apartment building complex owned by Gayle. The fair market value of Oceanview is $500,000, and it is subject to a mortgage of $250,000. Gayle also transfers $50,000 of cash to Frances. Frances' basis in Forestview is $150,000. Gayle's basis in Oceanview is $100,000. How much gain is realized and recognized by Frances and Gayle? What are Frances' and Gayle's respective bases in the property received by each?

Problem 2. LeBron owns undeveloped land worth $300,000. It has a basis of $120,000 and is subject to a $60,000 mortgage. LeBron sells the property to Carmelo, who assumes the mortgage, pays LeBron $60,000 cash in the year of sale, and gives him a note for $180,000, to be paid in three annual installments with interest at a market rate. Payments on the note begin after the year of sale.

A. What are the tax consequences to LeBron in the year of sale? Disregard Interest Income.

B. Alternatively, assume the mortgage was $150,000 and Carmelo purchased the property by assuming the mortgage, paying LeBron $50,000 cash in the year of sale, and signing a note for $100,000 payable in two annual installments of $50,000 (bearing interest at a market rate). What are the tax consequences to LeBron in the year of sale? Disregard Interest Income.