Calculations for "Recognized Gain with Boot Received (Of Cash)"
Gain/Loss Realized: |
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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: |
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Gain recognized | = | $2,500 (the lesser of realized gain of $3,000 or 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 |
| = | $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 "A" is correct. $2,500 gain recognized (the lesser of $3,000 gain realized and $2,500 cash boot received).Choice "d" is incorrect. $3,000 is the amount of gain realized. The gain recognized is the
lesser of the gain realized and the boot received.
Choice "c" is incorrect. $0 would be the gain recognized
if the boot was paid instead of received, Choice "b" is incorrect. A $2,500 loss would result from a monetary exchange of assets with values of $20,000 and $17,500 for the old and new assets, respectively.
