Question

You trade a boat and give a $35,000 cash boot for another boat with a fair...

You trade a boat and give a $35,000 cash boot for another boat with a fair market value of $110,000. The adjusted basis of your old boat is $60,000. The transaction cost is $1,500. You have the bottom of your new boat painted at a cost of $900, so that you can keep it in the water. What is the basis of the boat that you acquire in the trade?

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Answer #1

The new boat will be recorded at the fair market value. The difference between the adjusted value of the old boat together with cash paid and the fair market value of the new boat will be gain on the trade.

This shows that the new boat will be recorded at the fair market value.

All the incidental costs related to the trading of the boat and bringing it in to use of the buyer will be added to the fair market value.

The basis of the boat = fair market value of the boat + Transaction costs + painting costs = $110,000 + $1,500 + $900 = $112,400.

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