Treatment of mortgage relief under sections 1031, 357(a),(b), (c).

Sale Transaction:
Taxpayer purchases BA for $60, using $30 of his own funds and $30 borrowed from
a bank, which takes a mortgage of $30 on the property. A few years later, BAs fmv
rises to $100. BA is still subject to a mortgage of $30.
Taxpayer sells BA to Buyer for $70 in cash and relief of the $30 mortgage.
Amount realized is $100. 1.1001-2(a); Tufts. Since basis of BA is $60, Taxpayer
recognizes gain of $40.

Like-kind exchange.
Instead of sale, taxpayer exchanges BA for WA, which has a fmv of $70, and other
party assumes $30 mortgage. Assume that section 1031 applies.
Amount realized = ______.
Less Adjusted basis of BA, or _____ .
Realized gain is ______.
1031(d) treats relief from liability as equivalent of cash boot.
So recognized gain is _______.
Basis for WA is $ _______.

351 exchange.
Instead of sale or 1031 exchange, taxpayer exchanges BA, subject to the liability,
for all the stock of Newco, fmv $70.
Amount realized is ______. Subtracting BA basis of _______ results in realized gain
of _______.
Under section 357(a), relief from liability is not considered as boot in a 351
exchange.
So recognized gain is ______.
The basis for the stock is _______.

351 exchange subject to 357(b). Alternatively, taxpayer purchases property for $60
from his own funds. Later when the propertys value is $100, taxpayer borrows $30
from a bank to fund a personal vacation, and the bank takes a $30 mortgage on the
property. Shortly thereafter, taxpayer transfers the property, subject to the
mortgage to Newco for all of the Newco stock, fmv $70.
If 357(b) applies, then the relief from liability is treated as money received, or boot.
So taxpayer recognizes gain of ______ in the 351 exchange, and takes a basis for
the stock of _____ .
Taxpayers basis for BA is only $20.
Sale transaction:
Taxpayer purchased BA for $20 using his own funds. When BAs fair market value
rises to $100. Taxpayer borrows $30 from a bank, which takes a mortgage of $30
on BA. Taxpayer uses the funds in his business involving BA.
Taxpayer sells BA for $70 in cash and relief of the $30 mortgage.
Amount realized is $100. Reg. 1.1001-2(a; Tufts. Since basis of BA is $20, Taxpayer
recognizes gain of $80.

Instead of a sale, taxpayer exchanges BA, subject to the liability, for all the stock of
Newco, fmv $70.
Amount realized is __20____. Subtracting BA basis of ___30____ results in realized
gain of ___0____.
Under section 357(a), relief from liability is not considered as boot in a 351
exchange.
So recognized gain is __10____.
The basis for the stock is _______. 0

Alternatively, if 357(b) applied to the formation of Newco (because the borrowed

funds were used to fund a personal vacation), then the relief from liability is treated
as money received, or boot.
So taxpayer recognizes gain of ______ in the 351 exchange, and takes a basis for
the stock of ______.