Calculations for "Realized Gain with No Boot"
Gain/Loss Realized: |
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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 - $18,000 depreciation) |
| = | $20,000 fair market value of new auto - $17,000 adjusted basis of old auto |
| = | $3,000 gain |
Gain/Loss Recognized: |
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Gain recognized | = | $0 (the lesser of gain realized of $3,000 or boot received of $0) |
Basis of New Property: |
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New basis | = | Adjusted basis of property given up + Gain recognized |
| = | $17,000 + $0 |
| = | $17,000 |
Alternate calculation: $20,000 FMV new property − $3,000
deferred gain = $17,000 basis new property.
Choice "D" is correct. A $3,000 gain is realized on the transaction [fair market value of the new auto, $20,000 - $17,000, the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].Choice "a" 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 "c" is incorrect. There is a $3,000 gain, not a loss [fair market value of the new auto, $20,000 - $17,000, the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].
Choice "b" 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.
