CPA Study Group
Why is the basis used in this problem instead of the FV? I thought the basis of the new property plus is the FV of the old plus any cash received...
The basis of the new property has nothing to do with the taxpayer, that is the cost of the other party. In a like-kind exchange, always start with the basis of the property transferred and make adjustments from there.
The basis of the replacement (like-kind) property is generally the same as the basis of the property transferred, with the following adjustments:
Increase to Basis
- Boot paid (money, FMV of other property transferred, net liabilities the taxpayer assumes)
- Exchange expenses the taxpayer pays
- Any gain recognized on the exchange
Decrease to basis
- Boot received (money, FMV of other property received, net liabilities the other party assumes)
- Any loss recognized on the exchange