Question

In June 2018, Sue exchanges a sport-utility vehicle (adjusted basis of $104,320; fair market value of $130,400) for cash of $19,560 and a pickup truck (fair market value of $110,840). Both vehicles are for business use. Sue believes that her basis for the truck is $110,840.

Is Sue correct? Why or why not?

Yes . She must treat the transaction as a like-kind exchange .

Whats the basis of the new property?
Whats Sue's recognized gain of?

Answer 1

the exchange qualifies for non taxable exchange treatment under $1031, because sports utility vehicle and pickup trucks are in the same general business asset class(i.e, light general purpose trucks). the use of $1031 is not elective. under $1031 the following occurs:- amount realized($110840+$19560)$130400 adjusted basis($104320) realized gain$26080 recognized gain$19560. however , because sue recieve boot of $19560. the amount of realized gain is recognized. the adjusted basis of the truck is calculated as follows: fair market value $110840.postponed gain($26080-$19560) (6520) adjusted basis of truck $104320.