Calculations for "Realized Gain with Boot Received and Paid" Gain/Loss Realized: |
|
| Amount realized | = | Fair market value of new auto + Boot received - Adjusted basis of auto given up |
| = | $17,500 fair market value new auto + $3,500 fair market value of trailer received -
$1,000 cash boot paid - $17,000 adjusted basis of the old auto ($35,000 cost -
$18,000 accumulated depreciation) |
| = | $3,000 gain | Gain/Loss Recognized: |
|
| Gain recognized | = | $3,000 (the lesser of realized gain of $3,000 or boot received of $3,500) | Basis of New Property: |
|
| New basis | = | Adjusted basis of property given up + Gain recognized - Boot received + Boot paid |
| = | $17,000 + $3,000 - $3,500 + $1,000 |
| = | $17,500 |
Alternate calculation: $17,500 FMV new property + $0 deferred loss - $0
deferred gain = $17,500 basis new property. Choice "B" is correct. A $3,000 gain is realized [fair market value of the new auto $17,500 + $3,500 fair market value of the trailer boot received - $1,000 cash boot paid - $17,000 adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].Choices "c" and "d" are incorrect. $2,500 is the net value of the boots received and paid ($3,500 fair market value of the trailer received - $1,000 cash boot paid).Choice "a" is incorrect. $500 would be the gain/loss realized if the boots paid and received were ignored. |
