Calculations for "New Basis on Like-Kind Property with Liabilities Relieved (Boot Received)"
Gain/Loss Realized: |
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Amount realized | = | Fair market value of new auto + Liabilities relieved (boot received) - Adjusted basis of auto given up |
| = | $17,500 fair market value new auto + $2,500 relief from liability - $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 $2,500 in liabilities relieved (boot received)] |
Basis of New Property: |
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New basis | = | Adjusted basis of property given up + Gain recognized - Liabilities relieved (boot received) |
| = | $17,000 + $2,500 - $2,500 |
| = | $17,000 |
Alternate calculation: $17,500 FMV new property - $500 deferred gain =
$17,000 basis new property.
Choice "C" 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 in liabilities relieved (boot received)].Choice "d" is incorrect. $17,500 is the fair market value of the new auto.
Choice "a" is incorrect. A basis of $19,500 ignores the relieved liability.
Choice "b" is incorrect. A basis of $22,000 adds the $2,500 relief from liability (boot received) instead of subtracts it.
