Calculations for "Recognized Loss with No Boot"
Gain/Loss Realized: |
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Amount realized | = | Fair market value of auto received - Adjusted basis of auto given up |
| = | $20,000 fair market value of new auto - ($35,000 cost - $12,000 depreciation) |
| = | $20,000 fair market value of new auto - $23,000 adjusted basis of old auto |
| = | $3,000 loss |
Gain/Loss Recognized: |
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|
Loss recognized | = | $0 (Realized loss is never recognized in like-kind exchanges.) |
Basis of New Property: | = |
|
New basis | = | Adjusted basis of property given up |
| = | $23,000 + $0 |
| = | $23,000 |
Alternate calculation: $20,000 FMV new proerty + $3,000 deferred loss =
$23,000 basis of new property.
Choice "A" is correct. $0 is recognized (a realized loss is never recognized in like-kind exchange.)Choice "b" is incorrect. A $3,000 loss is realized on the transaction, but is not recognized [fair market value of the new auto, $20,000 - $23,000, the adjusted basis of the old auto ($35,000 cost - $12,000 accumulated depreciation)].
Choice "d" is incorrect. There is a $3,000 realized loss, not a $3,000 gain. The $3,000 loss is also not recognized.
Choice "c" is incorrect. $15,000 loss is the difference between the $35,000 cost of the old auto and $20,000 fair market value of the new auto. This calculation ignores the accumulated depreciation in determining the carrying value of the old auto.
