Calculations for "Realized Gain with Liabilities Assumed (Boot Paid)"
Gain/Loss Realized: |
|
|
Amount realized | = | [Fair market value of auto received - Liabilities assumed (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 + Liabilities assumed (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. A $3,000 gain is realized on the transaction [fair market value of the new auto, $22,000 - liabilities assumed (boot paid) of $2,000 - $17,000, the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].Choice "c" is incorrect. $0 is the gain/loss
recognized (the lesser of $3,000 gain realized or boot received of $0), not the gain
realized.
Choice "a" 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.
Choice "d" is incorrect. $5,000 gain would be the gain realized if the liabilities assumed (boot paid) of $2,000 were ignored.
