Calculations for "New Basis on Like-Kind Property with Liability Assumed (Boot Paid) and Liability Relieved (Boot Received)"
Gain/Loss Realized: |
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Amount realized | = | Fair market value of new auto + Boot received - Boot paid - Adjusted basis of auto given up |
| = | $17,500 fair market value new auto + $3,500 in relieved liabilities (boot received) -
$1,000 in liabilities assumed (boot paid) $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 | = | $2,500 [the lesser of realized gain of $3,000 or net relief from liabilities (boot received) of $2,500] |
Basis of New Property: |
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New basis | = | Adjusted basis of property given up + Gain recognized - Boot received + Boot paid |
| = | $17,000 + $2,500 - $3,500 + $1,000 |
| = | $17,000 |
Alternate calculation: $17,500 FMV new property - $500 deferred gain =
$17,000 basis of new property.
Choice "A" is correct. $17,000 is the basis of the new auto [$17,000 adjusted basis of the old auto ($35,000 cost - $18,000 accumulated depreciation) + $2,500 gain recognized - $2,500 net relief from liabilities (boot received) ($3,500 relief from liability (boot received) - $1,000 liability assumed (boot paid))].Choice "b" is incorrect. A basis of $14,500 ignores the $2,500 gain recognized.
Choice "d" is incorrect. $17,500 is the fair market value of the new auto.
Choice "c" is incorrect. A basis of $19,500 adds the adjusted basis of the old property and the gain recognized, and ignores the boots paid and received.
