[SkiBum1990]

Ignoring the “call of the questions”– why doesn’t problem #47 use net-boot when determining gain recognized and #55 does??

Property Taxation

#47 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?

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

#55 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 realized by the taxpayer on this transaction?

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

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[SkiBum1990]

#47: Net boot received = 3500(trailer-in) – 1000(cash-out) = $2,500

#55: Net boot received = 3500(liability-in – 1000(liability-out) = $2,500

is it because one uses property and the other is debt?!? for debt you use net boot?!? so confused lol

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[bhunt815]

I see what you are asking and it is not the least bit intuitive. It is sometimes easier for me just to memorize how to do a thing than try to understand the why.

FAR 04/11/2016 - 84
AUD 05/12/2016 - 79
BEC 07/06/2016 - 81
REG 08/29/2016

[SkiBum1990]

haha yes.. thats why I said “ignoring the call of the questions” ie: what its asking for…. the answers display the gain recognized calculation regardless. However, I'm seeking the answer as to why net boot was used in one and not the other. I think its due to liability relief boot vs property boot.

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[monikernc]

look at the different examples for like kind exchanges here:
https://tax.cchgroup.com/downloads/files/contemporary-tax-practice/Module2/Topic2/A-Sec-351-Transfers-Basic-Requirements.asp

this website helped me nail the basis/gain concepts it is a little rough but the illustrations are good.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[atabiaka]

Here is how I made it easy for myself to memorize steps:

#47
17,500 FMV received
+ 3,500 Boot received (cash/net debt relief/other assets)
=21,000 Total FMV Received
-18,000 Basis given up (17,000+1,000)
= 3,000 Gain Realized

The lesser of Boot recieved and Gain Realized, answer $3,000.

#55
17,500 FMV received
+ 2,500 Boot received (Debt relief 3,500 less Debt assumed 1,000)
=20,000 Total FMV Received
-17,000 Basis given up
= 3,000

The lesser of Boot received and Gain Realized, answer $2,500.

[SkiBum1990]

but why isnt NET BOOT RECEIVED used in #47 for the recognized gain calculation, like it is in #55?

In # 47, why isnt [$3,500 boot received- $1,000 boot paid = $2,500] used to compare to the realized gain, and just “boot received” is??

#55 used NET BOOT in recognized gain calculation.

I was wondering if its because one is property exchange and the other is debt relief?

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[atabiaka]

In #47 the taxpayer ONLY received an asset of $3,500, it won't be reduced by the boot given up, because the $1,000 he gave is a boot given and increases his basis for the asset given up. If you net the cash boot with asset and then add it to the basis of the asset you've given then the net effect will be zero.

In #55 they exchanged debt. When debt exchanged you net them out and account for them as Net Debt Relief to the party who gave away more debt than assumed. So the taxpayer gave away 3,500 debt but received only 1,000 so he has 2,500 ‘gain' which accounts as boot received.

I hope this makes sense. Just remember boot received is Cash received/NET DEBT RELIEF/Other Assets.
and boot given increases your basis.

[Author]

Replies