[k1zuna]

I’m seeing a conflict in Becker’s explanation regarding like-kind exchange’s gain recognition when there’s boot received and boot given up. Here are the 2 questions:

CPA-06420:

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?

Becker: Gain recognized = $3,000 (the lesser of realized gain of $3,000 or boot received of $3,500)

My question: how come we don’t net the boot received of 3500 with the boot paid of 1000? SEE BELOW.

CPA-06429:

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?

Becker: Gain recognized = $2,500 [the lesser of realized gain of $3,000 or net relief from liabilities (boot received)

of $2,500]

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FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013