[Julie5038]

I’m having a little difficulty with Business like exchanges when both the parties are giving boot. Would gain recognized be the lesser of realized gain and boot received-boot paid?

Thank you for your help everyone!

[whatkey]

Yep. Remember that it could only be a gain situation. Losses are disallowed in like-kind exchanges (You would “bury” the loss in the basis of the new asset).

For me, I do a journal entry when I think of basis:

DR boot rec'd

CR boot paid

DR new asset (PLUG, this is your new BV or basis)

CR Old asset (BV)

CR Gain (this is the lesser of gain realized OR boot received)

ex:

give up car CV of 15k and FMV of 20k and 2k cash for a car with a FMV of 20k and a trailer worth 2.5k.

Realized gain here is 5.5k (20k-15k = 5k gain on car + $500 gain on boot), recognized is going to be $500 (boot received – boot paid)

DR Boot rec'd $2,500

CR Boot paid $2,000

DR New Car (Plug) $15,000

CR Old Car (CV) $15,000

CR Gain $ 500

Another key concept to remember is that the basis of the new asset is ONLY going to change when there's a difference between the gain recognized and the boot received. This is when your recognized gain is LESS than the boot. This might save you some time on some questions.

Using Becker, Ninja Notes, and CpaReviewForFree

FAR - 87 (2/17)
REG - 89 (4/21)
AUD - 89 (5/31)
BEC - 89 (7/11)

[Anonymous]

I don't have the REG book in front of me, but there are formulas in R1 ancilary section (at the end of chapter…2011). If you memorize those, you'll be golden!! I ended up doing that, and it was very helpful!

[Anonymous]

Actually, it is “the lesser of realized gain or boot received” NOT boot paid. Even if you had a realized gain and only BOOT PAID (not received) in the transaction you would recognize NO gain. You only recognize gain when you receive boot.

[whatkey]

@bullandre

I think you misunderstood. If you receive more boot than you pay (i.e. you BOTH pay and receive boot) you potentially recognize gain on the NET boot. See my example above. Another example of this is exchanging land with both properties subject to mortgages. You NET the two mortgages as boot received (if your COD on the mortgage is greater than the new mortgage you assume). Of course if the COD on the mortgage is less than the mortgage assumed (loss) you don't recognize the loss and bury it in the basis of the new land.

Using Becker, Ninja Notes, and CpaReviewForFree

FAR - 87 (2/17)
REG - 89 (4/21)
AUD - 89 (5/31)
BEC - 89 (7/11)

[Anonymous]

Yes, I did not see the part that involved having net boot (i.e.boot received exceeds boot paid) but you are right.

[Author]

Replies