Calculations for "New Basis on Like Kind-Exchange Property 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 of new property.
Choice "C" is correct. $17,000 is the substituted basis [the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) + gain recognized $0].Choice "d" is incorrect. $18,000 is accumulated depreciation on the old auto.Choice "a" is incorrect. $20,000 is the fair market value of both the old and new autos.Choice "b" is incorrect. $35,000 is the original cost of the old auto.
