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 new auto + Boot received - Adjusted basis of auto given up |
| = | $16,500 fair market value new auto + $3,500 fair market value of trailer - $17,000
adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) |
| = | $3,000 gain |
Gain/Loss Recognized: |
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Gain recognized | = | $3,000 (the lesser of realized gain of $3,000 or boot received of $3,500) |
Basis of New Property: |
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New basis | = | Adjusted basis of property given up + Gain recognized - Boot received |
| = | $17,000 + $3,000 + $0 - $3,500 |
| = | $16,500 |
Alternate calculation: $16,500 FMV new property + $0 deferred loss - $0
deferred gain = $16,500 basis of new property.
Choice "D" is correct. The basis of the new auto is $16,500 ($17,000 adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) + $3,000 gain recognized - $3,500 boot received). It is also the fair market value of new auto. Choice "b" is incorrect. $17,000 is the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation), which ignores the boot received and the gain recognized.
Choice "c" is incorrect. $20,000 is the fair market value of the old auto.
Choice "a" is incorrect. $23,500 is the $3,500 boot received + $17,000 adjusted basis of the old auto + $3,000 gain recognized. The boot received is subtracted, not added.
