Calculations for "Realized Loss with No Boot"
Gain/Loss Realized: |
|
|
Amount realized | = | Fair market value of auto received - Adjusted basis of auto given up |
| = | $20,000 fair market value of new auto - ($35,000 cost - $12,000 depreciation) |
| = | $20,000 fair market value of new auto - $23,000 adjusted basis of old auto |
| = | $3,000 loss |
Gain/Loss Recognized: |
|
|
Loss recognized | = | $0 (Realized loss is never recognized in like-kind exchanges.) |
Basis of New Property: | = |
|
New basis | = | Adjusted basis of property given up |
| = | $23,000 + $0 |
| = | $23,000 |
Alternate calculation: $20,000 FMV new property + $3,000
deferred loss = $23,000 basis of new property.
Choice "D" is correct. The taxpayer realizes a $3,000 loss (fair market value of new auto $20,000 - $23,000 adjusted basis of old auto).Choice "c" is incorrect. $0 is the gain/loss
recognized (the lesser of gain realized of $3,000 or boot received of $0), not the gain
realized. This is also the difference in fair market value between old and new autos.
Choice "b" is incorrect. There is a $3,000 loss, not a $3,000 gain.
Choice "a" is incorrect. $15,000 loss is the difference between the $35,000 cost of the old auto and $20,000 fair market value of the new auto. This calculation ignores the accumulated depreciation in determining the carrying value of the old auto.
