[Gary]

I have a question regarding like kind exchanges. See the example problem below

Leker exchanged a van that was used exclusively for business and had an adjusted tax basis of $20,000 for a new van. The new van had a fair market value of $10,000, and Leker also received $3,000 in cash. What was Leker’s tax basis in the acquired van? a. $20,000 b. $17,000 c. $13,000 d. $ 7,000

The answer is B, but I thought it was A based on calculations below

Old Basis 20000
+ Gain Recognized (cash received) 3000
– Boot Received (3000)

Basis : 20,000

Would the gain recognized technically be zero for this question since the exchange was for a van that is worth less than the basis in the old van?

AUD 8/18/16
FAR 11/16
BEC 1/17
REG 2/17

[ThomasHallberg]

Yes, I believe you're correct. Since the FMV of the new van + boot is less than the van you are exchanging, no gain is recognized. 20,000 – boot received = 17,000. Thanks for the refresh, forgot about this rule 🙂

[Author]

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