Calculations for "Recognized Gain with Liability Assumed (Boot Paid) and Liability Relieved (Boot Received)"
Gain/Loss Realized: |
|
|
Amount realized | = | Fair market value of new auto + Boot received - Boot paid - Adjusted basis of auto given up |
| = | $17,500 fair market value new auto + $3,500 in relieved liabilities (boot received) -
$1,000 in liabilities assumed (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 | = | $2,500 [the lesser of realized gain of $3,000 or net relief from liabilities (boot received) of $2,500] |
Basis of New Property: |
|
|
New basis | = | Adjusted basis of property given up + Gain recognized - Boot received + Boot paid |
| = | $17,000 + $2,500 - $3,500 + $1,000 |
| = | $17,000 |
Alternate calculation: $17,500 FMV new property - $500 deferred gain =
$17,000 basis of new property.
Choice "D" is correct. $2,500 in gain is recognized [the lesser of $3,000 gain realized and the $2,500 net liability relief. The net relief from liabilities (boot received)$3,500 relief from liability (boot received) - $1,000 liability assumed (boot paid)].Choice "a" is incorrect. $3,500 is the amount of liability relieved.
Choice "b" is incorrect. $3,000 is the gain
realized, not
recognized. Choice "c" is incorrect. Gain is recognized
to the extent of boot
received in like-kind transactions.
