A taxpayer had an investment with an adjusted basis of $125,000, subject to a mortgage of $75,000. When the property had value of $375,000, it was exchanged for another parcel of land, which the taxpayer is similarly holding for investment. The other party is assuming the $75,000 mortgage in the exchange. The land acquired has a fair market value (FMV) of $260,000 and is subject to a mortgage of $40,000, which the taxpayer is assuming. In addition, the taxpayer is receiving a recreational vehicle with a fair value of $30,000, and $50,000 in cash.

How much gain, if any, should the taxpayer recognize on the exchange, and what will be the basis in the new property?

Gain Recognized Basis for Real Estate

a) $ 250,000 $125,000

b) $250,000 $260,000

c) $115,000 $125,000

d) $115,000 $260,000