Calculations for "Realized 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 |
Choice "A" is correct. A $3,000 gain is realized on the transaction [fair market value of the new auto, $22,000 - boot paid of $2,000 - $17,000, the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].Choice "b" is incorrect. $0 is the gain/loss recognized (the lesser of the $3,000 gain realized or the boot received of $0), not the gain realized.
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, not the gain realized. It is also the amount of boot paid (not received).
Choice "c" is incorrect. $5,000 gain would be the gain realized, if the boot of $2,000 was ignored.
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