This is a problem from Becker Regulation Updates
(Supplement) for R1. I was not able to get a reasonable
response from the local Becker live instructor.
I understand the $3000 realized gain, however the amount
recognized is giving me some trouble. Is it a general
rule that boot received (in this case the $3500 trailer)
CAN NOT be offset against boot given (in this case the
$1000 cash)?
My initial answer for gain recognized is $2500 because
even though $3500 worth of trailer was received, the TP
gave back $1000 cash.
EXAMPLE 7: REALIZED GAIN with BOOT RECEIVED AND BOOT PAID
(CASH and NON‐LIKE KIND PROPERTY)
Taxpayer is trading in an old automobile used solely for
business for another automobile to be used for business.
The automobile originally cost $35,000 and Taxpayer has
taken $18,000 in depreciation. The old automobile is
currently worth $20,000.
Assume that the new automobile Taxpayer wants in exchange
is only worth $17,500, so the other party agrees to give
Taxpayer a trailer worth $3500 in addition to the new
auto, and Taxpayer agrees to pay $1000 cash in addition
to the trade‐in:
A. Gain/Loss Realized = Amount Realized – Adjusted Basis
of Auto Given Up
=$20,000 amt realized ($17,500 FMV new auto + $3500 FMV
trailer boot recd – $1000 cash boot pd)– $17,000 adj
basis old auto ($35,000 cost ‐$18,000 deprec) = $3000
Gain
B. Gain/Loss Recognized = $3000 (lesser of Realized Gain
of $3000 or Boot Received of $3500)
C. Basis of New Property =Adjusted Basis of Property
Given Up + Gain Recognized + Boot Pd – Boot Recd
= $17,000 + $3000 + $1000 ‐ $3500 = $17,500 Basis
