[Madhur]

I have a hypothetical question. Say I receive boot but also pay some cash in order to make the trade more fair. For instance I trade tractors and get another smaller tractor and then pay cash to even out. For boot recognized would I net the cash paid and equipment received or just count the boot received as gain recognized?

[MCLKT]

In this hypothetical situation, what type of boot are you receiving?

I don't think there would be an instance that you would pay cash and receive cash. That doesn't make any sense. Whoever is paying the most cash would just pay the difference.

If you receive boot, there is no gain.

If you both receive boot in an alternative form, like nonlike assets or the assumption of a liability, there are different rules for different forms rec'd/given based on if you are the receiver or the giver…

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[J]

I think that I understand what you're trying to get at… I think that you made the example a little confusing by saying that you also get a smaller tractor (and you were intending this as boot received). Let's say you exchange tractors in a like-kind exchange; you also receive investment securities as boot, and you pay cash as boot. Now you're asking if the boot cancels out (net) in a situation (investment securities for cash)…

I believe the answer is yes, although I'm not absolutely certain. Generally the rule is that cash/property boot would net… liabilities assumed net… and boot received in the form of liabilities assumed by the other party does net. The only occasion that I see in which it wouldn't is if you receive cash or property as boot, and you give boot in the form of the assumption of a liability. If someone wants to correct me here, please do so, but if that is the case, the example below might help to illustrate.

EXAMPLE. John Smith exchanges property with an adjusted basis of $10,000 and a FMV of $14,000 in exchange for property from Mike Jones with a FMV of $17,000. This qualifies as a like-kind exchange. In addition, John Smith gives Mike Jones securities with a basis and FMV of $5,000 and Mike Jones gives John Smith cash of $5,000.

In this case, I *THINK* that the boot received (cash) and the boot given (securities) would cancel out. Hence you would have no gain to be recognized, and the property received by John Smith would then have a basis of $10,000.

[Madhur]

Let me give a better example. Say I have a tractor with an adjusted basis of 5,000 and it is worth 10,000. I get a tractor from someone in the exchange worth 8,000 dollars. They give me some fertilizer worth 3,000 dollars so in return I give them cash of 1,000 to even it out. Would the gain recognized be 3,000 (the boot received) or 2,000 (net of boot received minus the cash given).

The problem is that there was a question like this on the CPA review that threw me off (said the gain recognized was 3,000) and the instructor has not been too clear on why that is. It seems like she is just avoiding my questions. I'm sure it wont be on the CPA but I dont want to take any chances

[Author]

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