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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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