Joined: 10 Dec 2009
Online Status: Offline Posts: 657
Posted: 27 May 2011 at 03:19 | IP Logged
The Oregon Company has a large donut maker used in its business which has a tax basis of $14,000 but a fair value of $11,000. It is exchanged for a new donut maker worth $10,000. Oregon also collected $1,000 in cash to even up the trade. What is the tax basis to Oregon of the new donut maker after the trade?ans 13000
In a like-kind exchange, the taxable gain is the lower of the gain on the trade or the cash (boot) received. Here, the gain is actually a loss of $3,000 so no gain is recognized. The loss is the tax basis given up ($14,000) less the fair value received ($11,000 or $10,000 plus $1,000). So, if Oregon is given up a tax basis of $14,000 and no gain is recognized, the items received must have a tax basis of that same $14,000. The cash has to have a tax basis of $1,000. That leaves $13,000 as the remaining tax basis for the new donut-maker. in last part i am little confused...why it is not added to 14000?
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Topic: like kind
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