Calculations for "Realized Loss with Boot Received (Of Cash)"
Gain/Loss Realized: |
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Amount realized | = | Fair market value of new auto + Boot received - Adjusted basis of auto given up |
| = | $16,500 fair market value new auto + $3,500 cash boot - $23,000 adjusted basis
of the old auto ($35,000 cost - $12,000 accumulated depreciation) |
| = | $3,000 loss |
Gain/Loss Recognized: |
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Loss recognized | = | $0 (Realized loss is never recognized in like-kind exchanges.) |
Basis of New Property: |
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New basis | = | Adjusted basis of property given up - Loss recognized - Boot received |
| = | $23,000 - $0 - $3,500 |
| = | $19,500 |
Alternate calculation: $16,500 FMV new property + $3,000 deferred loss =
$19,500 basis of new property.
Choice "C" is correct. The taxpayer realizes a $3,000 loss (fair market value of new auto $16,500 + $3,500 boot received - $23,000 adjusted basis of old auto).Choices "d" and "b" are incorrect. $3,500 is the amount of cash boot received.
Choice "a" is incorrect. A $6,500 loss would be realized if the boot of $3,500 were ignored [fair market value of the new auto of $16,500 - adjusted basis of the old auto of $23,000 ($35,000 cost - $12,000 accumulated depreciation)].
