Vandal Farmer has farmed land near Moscow, Idaho, for 50 years. Vandal now intends to retire from farming and would like to sell his land and buy a residential apartment building in either Pullman or Moscow for retirement income. Vandal received the farmland from his father, by device on June 18, 1978, when the fair market value was $425,000. Vandal’s father paid $85,000 for the land. The farmland presently has a mortgage (Vandal signed a promissory note) of $250,000. The land appears to be ripe for commercial or residential development and now has substantial value. Randy Realtor, a real estate broker, has contacted Billy Rich, a land developer, who owns a residential apartment building in Pullman, which he built (land purchased and building completed 11 months ago) and has been rented to students since. Billy Rich is looking for land to either develop or hold for an investment not requiring his personal involvement. Billy Rich would be receptive to purchasing Vandal’s farmland in for such purposes. Randy has put together the following transaction:

Vandal will transfer his farmland to Billy Rich for the following assets to be transferred from Billy Rich:

Cost Depreciation Fair market Value

Apartments – land & building            1,200,000            150,000            1,500,000

Personal motor home                            180,000                                            30,000

IBM common stock                                   85,000             50,000

Cash                                                            20,000

The apartments (land and building) is subject to a (mortgage) of $50,000. No promissory note was signed. The apartments have been depreciated using the straight-line depreciation method. (Note: A loss on property used for personal use is not allowed.)

(b) What will be the tax basis of the property, or properties, received by Billly Rich?

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Property __________________ Basis $__________________ Character of the asset? ____________________

Explain and support your answer. Computations only will not be sufficient. Show your computations - required

Space for computations

Space for written answer

Answer rating: 100% (QA)

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