Taxpayer T owns an office building worth $950,000, encumbered by a mortgage of $710,000. His original cost was $830,000, and he has taken depreciation deductions of $185,000 on the building. T wants to exchange his building for another office building worth $800,000. He will assume the existing mortgage of $580,000 on the new building.

1) As state, would this be a fair arms-length exchange? If not, who should be required to pay cash boot, and how much? Explain.

2) Assume the exchange is made under the terms of your answer to #1, compute the following for T, showing all calculations.

a) Realized Gain.

b) Recognized Gain.

c) Basis in the new building.