Jane Freeman transferred three properties to Health Innovations Corporation: An office building, office equipment in that building, and an adjacent parking garage, in a Sec. 351 exchange, as shown in the table below:

Property Adjusted Basis FMV

Office building $80,000 $110,000

Office equipment 2,000 1,500

Parking Garage15,00012,000

$ 97,000 $123,500

The garage and equipment are free of liabilities, but a $110,000 mortgage remains on the office building. Complete calculations and explain your answers to these questions, referencing all applicable sections of the Internal Revenue Code:

1. If Health Innovations assumes the mortgage, what gains and tax-related effects would Freeman and Health Innovations sustain?
2. What if Health Innovations doesnotassume the mortgage? What gains and tax-related effects would Freeman and Health Innovations sustain?