Tony Taxpayer owns an office building held for rent located in San Francisco. Tony has owned the office building for 10 years. Relevant information regarding the property follows: Tony is in the maximum tax bracket for federal income tax purposes. On 1/1/X0, Tony exchanges the office building for other improved real property to be held by him for investment. The realty he receives is currently owned by Edward Exchanger who acquired the realty 9 months earlier. Edward uses the realty as his principal residence. Edward's real property is worth $3MM and it is unencumbered (i.e. debt-free). Edward's basis in the land is $6MM. On the transfer, Edward acquired Tony's office building subject to the debt. Which of the following statements best describes the tax consequences to Tony arising from the exchange transaction? Select one: 3. Tony's amount realized is $3MM. His gain realized is $.5MM and his holding period tacks. . Tony's amount realized is $4MM. His gain realized is $1MM and his holding period in the exchange property begins on the day it is acquired. Even though Tony has gain realized of $.5MM, he has no gain recognition because the transaction qualifies under section 1031. d. The $1MM debt that Edward agrees to be subject to is taxable boot to Tony. Accordingly, Tony must recognize $1MM gain. 2. Tony must recognize $.5MM gain. His holding period in the property received is long-term