Answer:
Explanation:
a. Calculate Carey's recognized gain
Fair market value of property received = 100,000
Add: Cash received = 10,000
Add: Liability assumed by other party = 40,000
Total amount realized = 150,000
Then, we deduct the adjusted basis of property given up from the total amount realized. This will be:
= 150,000 - 115,000
= 35,000
b. Calculate Carey's basis in the property received.
Basis of property given up = 115,000
Less: Boot received = 50,000
Add: gain realized 35,000
Basis of property received = 100,000
Note that boot received was calculated as:
Cash received = 10,000
Add: Liability assumed by other party = 40,000
Boot received = 50000
