Choice "C" is correct. In a like-kind exchange, if property other than property qualifying for such exchange is received, (e.g., cash known as "boot"), the transaction, while not qualified for complete nonrecognition, produces recognized gain. The recognized gain is the lower of realized gain or the boot. Cancellation of debt is classified as "boot," so the total boot is $3,000 ($1,000 cash + $2,000 debt cancellation).
Choice "d" is incorrect. To avoid all immediate gain on a like-kind exchange, boot cannot be received.
Choice "a" is incorrect. The exchange of the like-kind assets alone does not result in gain.
Choice "b" is incorrect. The exchange of the like-kind assets alone does not result in gain.