Calculations for "Recognized Gain with Boot Paid in Cash or Non-Like-Kind Property"
Gain/Loss Realized: |
|
|
Amount realized | = | (Fair market value of auto received - Boot paid) - Adjusted basis of auto given up |
| = | ($22,000 fair market value new auto - $2,000 boot paid) -
($35,000 cost of old auto - $18,000 accumulated depreciation) |
| = | $20,000 - $17,000 |
| = | $3,000 gain |
Gain/Loss Recognized: |
|
|
Gain recognized | = | $0 (lesser of realized gain of $3,000 or boot received of $0) |
Basis of New Property: | = |
|
New basis | = | Adjusted basis of property given up + boot paid |
| = | $17,000 + $2,000 |
| = | $19,000 |
Alternate calculation: $22,000 FMV new property - $3,000 deferred gain =
$19,000 basis of new property.
Choice "B" is correct. $0 of gain is recognized (the lesser of gain realized of $3,000 and boot received of $0).Choice "d" is incorrect. $2,000 is the difference between the fair market value of the old auto and the fair market value of the new auto. It is also the amount of boot paid (not received).
Choice "c" is incorrect. $3,000 is the gain realized, not the gain recognized.
Choice "a" is incorrect. A $5,000 gain would be realized if the boot paid of $2,000 was ignored [fair market value of the new auto of $22,000 - adjusted basis of the old auto of $17,000 ($35,000 cost - $18,000 depreciation)].
