Assignment:
1) ESSAY: Several years ago, Courtney borrowed $100,000 of recourse debt from the Friendly Local Bank and used it to buy some equipment to start up a business. Courtney's business results have been disappointing and she has not made any principal payments on the loan, but she has paid all of the interest due. Courtney has fallen on hard times and her only asset is the equipment, which is now worth $75,000 and in which she now has an adjusted basis of $50,000. Courtney has no other assets and no other liabilities. If the bank cancels the debt in exchange for the apartment building, what are the income tax consequences to Courtney?
a) Primary authorities relied on in answering (b):
b) Discussion:
MUST ONLY USE APPROPRIATE AUTHORITY TO CITE IS CODE, REGULATIONS, CASES AND RULINGS. Do not cite to anything else.
1) Peter Piper purchased a parcel of land for $20,000 and constructed an apartment building on it at a cost of $380,000 (total basis in land and building = $400,000). He paid the entire purchase price and construction costs with the proceeds of a nonrecourse loan that was secured by a mortgage on the property. Two years later, when Peter's basis in the land and apartment building was $360,000 (due to $40,000 of depreciation on the building), the fair market value of the land and building was $500,000 and the outstanding balance on the mortgage was still $400,000, Peter sold the land and building, subject to the mortgage, to Betty Boop for $100,000 in cash. As part of the transaction, Betty assumed the mortgage.
a) How much gain or loss must Peter recognize? What is its character? What is Betty's basis in the property?