Problem: Joel owned land purchased five years ago for use in business operations at a cost of $300,000. The land was worth $800,000 and was encumbered by a $400,000 mortgage. Sara owned land purchased three years ago as an investment for $500,000. The land was encumbered by a $320,000 mortgage and was worth $750,000. On November 1, 2012, Joel and Sara agreed to exchange the land each corporation owned on the following terms. In exchange for Sara's land, Joe paid Sara $30,000 and assumed its $320,000 mortgage. In exchange for Joel's land, Sara assumed Joel's $400,000 mortgage. Assuming the exchange qualified as a tax-deferred exchange under IRC Section 1031, please answer the following questions.
1) What is the amount of Joel's realized gain, what is the amount and character of its recognized gain (if any), and what is its basis in the land it received from Sara in the exchange on November 1, 2012? Please explain and show all calculations.
2) What is the amount of Sara's realized gain, what is the amount and character of its recognized gain (if any), and what is its basis in the land it received from Joel in the exchange on November 1, 2012? Please explain and show all calculations.