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In August 1988, petitioners entered into an exchange
agreement under which they would exchange their interest in the
Detroit properties for yet unspecified property that was subject
to a mortgage of at least $106,523. By grant deed dated August
31, 1988, petitioners transferred their interest in the Detroit
properties to IEC. IEC and the Landaus then conveyed the Detroit
properties to a purchaser for $365,000, or $182,500 for
petitioners' one-half interest. On their 1988 return,
petitioners reported that their adjusted basis in the Detroit
properties was $132,840 and that the Detroit properties were sold
in a transaction in which no gain or loss was recognized under
section 1031. By the end of 1988, petitioners had taken
depreciation on the Detroit properties equal to $14,073.
On or about July 10, 1986, petitioners acquired an interest
in certain real property in Huntington Beach, California, known
as the 8th Street property. On or about August 19, 1986,
petitioners acquired an additional interest in the 8th Street
property.
In September 1988, petitioners entered into an exchange
agreement with IEC to exchange their interest in the 8th Street
property for, as of then, unidentified property. By grant deed
dated September 12, 1988, petitioners transferred their interest
in the 8th Street property to IEC. IEC then conveyed the 8th
Street property to a purchaser for $344,000. Petitioners
reported that their adjusted basis in the 8th Street property was
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