Question about boot for Like-kind exchanges REG

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  • #201637
    Anonymous
    Inactive

    I’m a little confused on the concept of “net boot.”

    For example:

    This question

    A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The taxpayer agrees to assume a liability secured by the new auto of $1,000. The other party also agrees to assume a liability secured by the taxpayer’s old auto of $3,500. What is the gain or loss recognized by the taxpayer on this transaction?

    I see that in this question they net the liabilities surrendered and acquired into a net $2,500 (taxpayer takes the $1,000 liability and other party takes on the $3,500 liability. 3500-1000 = 2500).

    Then how come in this question:

    A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The other party agrees to give the taxpayer a trailer worth $3,500 in addition to the new auto, and the taxpayer agrees to pay $1,000 cash in addition to the trade-in. What is the gain or loss recognized by the taxpayer in this transaction?

    You pay $1000 in boot and you receive a trailer worth $3500. Isn’t that boot as well? So why isn’t the boot netted in this situation? Is it because they aren’t the same kind of “boot.”?

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  • #774244
    Anonymous
    Inactive

    Nevermind I think I found the answer to my question. Correct me if I'm wrong.

    Boot received for liabilities is netted. If the net liability is in your favor it is an overall boot received. If the net liability is not in your favor then it is an overall boot paid.

    #774245
    SteadyGrind
    Participant

    You are correct. In order to net the boot, it must be “like-kind” (i.e., of the same character). Although in reality, you are receiving something worth cash (the trailer in this case), it is not cash and, therefore, you can't net it. Combine my reply with what @chrislo2007 said and that should round out the answer.

    BEC:83
    FAR:75! x3
    AUD:79
    REG:75 x2

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