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Topic
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Becker Question –
Question 1: 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?
Answer: Gain Recognized =$3,000 (the lesser of realized gain of $3,000 or boot received of $3,500)
Question 2: 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?
Answer: Gain recognized =$2,500 {the lesser of realized gain of $3,000 or net relief from liabilities (boot received) of $2,500}
I don’t understand why one question says it’s the lesser of NET boot received while the other is boot received. Which one is it??
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