Calculations for "New Basis of Like-Kind Property with Liabilities Assumed (Boot Paid)"
Gain/Loss Realized: |
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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 "D" is correct. $19,000 is the basis of the new auto ($17,000 adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) + $2,000 boot paid).Choice "a" is incorrect. $17,000 is the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation). The boot paid must also be included in the new basis.
Choice "b" is incorrect. $20,000 is the fair market value of the old auto.
Choice "c" is incorrect. $22,000 is the fair market value of the new auto.
