Calculations for "New Basis of Like-Kind Property with Liabilities Assumed (Boot Paid)"
Gain/Loss Realized: |
|
|
Amount realized | = | Fair market value of new auto + Boot received - Adjusted basis of auto given up |
| = | $17,500 fair market value new auto + $2,500 cash boot - $17,000 adjusted
basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) |
| = | $3,000 gain |
Gain/Loss Recognized: |
|
|
Gain recognized | = | $2,500 (the lesser of realized gain of $3,000 or boot received of $2,500) |
Basis of New Property: |
|
|
New basis | = | Adjusted basis of property given up + Gain recognized - Boot received |
| = | $17,000 + $2,500 + $0 - $2,500 |
| = | $17,000 |
Alternate calculation: $17,500 FMV new property - $500 deferred gain =
$17,000 basis of new property.
Choice "D" is correct. The basis of the new auto is $17,000 ($17,000 adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) + $2,500 gain recognized - $2,500 boot received). It is also the fair market value of new auto.Choice "c" is incorrect. $17,500 is fair market value of the new auto.
Choice "a" is incorrect. $20,000 is the fair market of the old auto.
Choice "b" is incorrect. $22,000 would be the new basis if the $2,500 boot was added, instead of subtracted.
