Who would be filing the 709?  Maybe the property value has declined to $1.0 million and the father is helping out the son by taking it off his hands.  

I think @rcarmarkcpa is on the right track, noting that the son has to pick up income from depreciation recapture because the mortgage exceeds the basis.  But this sounds like a college quiz question, so there might be a catch.  On the other hand, it might just be am honest test of what freshman accounting students have learned.