8025-6CT-1P

AID:1825 | 06/09/2013

It is given mortgages purchase a land for $100,000. The $100,000 is collected from
$80,000 as bank loan and balance $20,000 is as owned cash.
a)
Calculate cost basis of mortgagors,
It is given that the mortgagor borrows from Bank is $80,000 and cash is $20,000.
Now, calculate cost basis of mortgagors,

Cost basis of mortgagors=Mortgagor borrows from Bank - Cash

=$80,000 + $20,000
=$100,000
(1)
The calculated cost basis of mortgagors is $100,000

b)
Mortgagor does not have gross income. It is not affects the account basis of property
because it is not use for property purchase .

c)
Mortgagor get second borrows from bank is $100,000 for improve the land.
Calculate mortgagor basis,
It is given that the first mortgagor borrows from Bank is $80,000, second mortgagor
borrows from Bank is $100,000 and cash is $20,000.
Now, calculate mortgagor basis,
First mortgagor borrows from Bank+

Second mortgagor borrows from Bank + Cash

Mortgagor basis=

=$80,000 + $100,000 + $20,000

=$200,000
(2)
The calculated mortgagor basis is $200,000

d)
Mortgagor use the first borrows for purchase a land and second borrows for bonds.
Calculate mortgagor basis,
It is given that the first mortgagor borrows from Bank (first) is $80,000 and cash is
$20,000.
Now, calculate mortgagor basis,

Mortgagor basis=Mortgagor borrows from Bank first - Cash

=$80,000 + $20,000
=$100,000
(3)
The calculated mortgagor basis is $100,000
Justification:
Mortgagors second borrows is not include in the basis, because it is not use for land
purchase or improvement. Hence mortgagor basis is $100,000

e)
Calculate amount realized,
It is given that the principal amount of two mortgages is $180,000 and mortgagor sold the
two properties for $120,000.
Now, calculate amount realized,

Amount realized=Principal amount of two mortgages + Mortgagor sell the two property
=$180,000 + $120,000
=$300,000
(4)
The calculated value of amount realized is $300,000

Calculate mortgagor gain on sale,

It is calculated that the cost basis of mortgagors is $100,000 (refer to Equation (3)) and
given value of amount realized is $300,000.
Now, calculate mortgagor gain on sale,

Mortgagor gain on sale=Value of amount realized - Cost basis of mortgagors

=$300,000-$100,000
=$200,000
(5)
The calculated mortgagor gain on sale (computation and recognition) is $200,000
Justification:
Mortgagors second borrows is not include in the basis, because it is not use for land
purchase or improvement. Hence mortgagor gain on sale is $200,000.

f)
Calculate mortgages gain,
It is given that the principal amount of two mortgages is $180,000 and calculated
mortgagor basis is $100,000 (refer to Equation (3)).
Now, calculate mortgages gain,

Mortgagor gain =Principal amount of two mortgages - Mortgagor basis

=$180,000-$100,000
=$80,000
(6)
The calculated mortgages gain is $80,000
Justification:
Mortgagors second borrows is not include in the basis, because it is not use for land
purchase or improvement. Hence mortgagor gain is $80,000.

Calculate sons basis:

It is given that the amount realized (Fair Market Value) is $300,000 and principal amount
of two mortgages is $180,000.
Now, calculate sons basis,

Son basis =Amount realized - Principal amount of two mortgages

=$300,000 - $180,000
=$120,000
(7)
The calculated sons basis is $120,000
g)
Calculate spouse basis,
It is given that the principal amount of two mortgages is $180,000 and calculated
mortgagor basis is $100,000 (refer to Equation (3)).
Now, calculate spouse basis,

Spouse basis =Principal amount of two mortgages - Mortgagor basis

=$180,000-$100,000
=$80,000
(8)
The calculated spouse basis is $80,000
Mortgagors gain is not recognized. Spouse not paying any further tax for acquisition of
the land. Because of 1041.

h)
Calculate spouse basis,
It is given that the relief of both mortgages is $180,000 and calculated mortgagor basis is
$100,000 (refer to Equation (3)).
Now, calculate spouse basis,

Spouse basis =Relief of both mortgages - Mortgagor basis

=$180,000-$100,000
=$80,000
(9)
The calculated spouse basis is $80,000

Parker v. Delaney, 186 F.2d 455 (1st Cir. 1950) principles apply if even if the money is
going back to the bank.

i)
Calculate spouse basis,
It is given that the relief of both mortgages is $180,000 and calculated mortgagor basis is
$100,000 (refer to Equation (3)).
Now, calculate spouse basis,

Spouse basis =Relief of both mortgages - Mortgagor basis

=$180,000-$100,000
=$80,000
(10)
The calculated spouse basis is $80,000
The property value decline to $170,000 is not affects the amount realized value. Because
mortgagor was relieved of his debt.