• Russell Turner owns a shopping center in a city where a new freeway was built four years ago.
• The new freeway changed traffic patterns in the city and the traffic on the road next to the shopping center has declined dramatically. (If you need an example, drive down Bristol Street from Jamboree to Redhill in Newport Beach and look at the impact of the freeway by-passing the fast food restaurants and small shopping centers on the west side of Bristol.)
• Today, the property has an adjusted basis of $800,000 and a fair market value of $600,000. This has been caused by depreciation and changing driving patterns.
• The amount of the non-recourse mortgage on the property is $2,700,000.
• The property was purchased many years ago and re-financed in tax free transactions several times.
• Because of substantial past and projected future losses associated with this old real estate development (occupancy rate of only 37% for the past three years as the result of tenant bankruptcies), Russell Turner deeds the property to the creditor, Pacific Ocean Finance Company.

(2) What are the tax consequences of returning the property to the bank?

(3) Assume the original facts and that Russell Turner has a friend at Hoag Hospital, a local charity and the charity has the capacity to fund the property indefinitely and would be willing to accept the property as a gift. What are the tax consequences to Russell Turner?