Calculations for "Realized Gain with Boot Received (Of Non-Like-Kind Property)"
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 "A" is correct. A $3,000 gain is realized on the transaction [fair market value of the new auto, $16,500 + $3,500 of boot received - $17,000, the adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation)].Choice "d" is incorrect. $3,500 is fair market value of boot received, not the gain realized.
Choice "b" is incorrect. $500 loss would be realized if the boot received of $3,500 was ignored.
Choice "c" is incorrect. $3,500 is the difference between the fair market value of the old auto and the fair market value of the new auto. $3,500 is also the fair market value of the boot received.
