Hw 4
Andrew entered into a sale agreement with Joe, who agreed to
give up his property, which is worth $1.8M on the day of the agreement was
signed. Joe purchased his property 5 years ago for $500,000, and he has been
using it as his primary resident since he purchased the house. Joe is currently
using his property as collateral for a mortgage of $700,000. On the other hand,
Andrew is going to transfer his rental property to Joe. Andrew purchased his
property 3 years ago for $600,000. The current market price is $1.4M dollars.
Andrew agreed to give Joe additional $200,000 cash, but he also notified Joe
that he had a mortgage on the property for $500,000.
Under section 1031
What is the basis of Andrew and Joe in replacement property?
What are tax consequences for Andrew and Joe (if
applicable)? Assuming capital gain rate is 20%
