Margaret Moraine exchanged a business auto that had an adjusted basis to her of $24,000 with an outstanding liability of $4,000 for a new auto with a fair market value of $22,000. Margaret paid $2,000 in cash and her liability was assumed by the other party. What is Margaret's basis in the new auto?
A) $18,000
B) $20,000
C) $22,000
D) $24,000
E) None of the above

Question

Quizplus · Accepted Answer

the amount of any liabilities of the seller assumed by the buyer is treated as money received by the seller and decreases the seller's basis in the same manner as cash received
 Margaret's basis in the new car is her basis in the old car ($24,000) reduced by her outstanding liability that was assumed by the buyer ($4,000) and increased by the $2,000 that she paid in cash.

Margaret Moraine Exchanged a Business Auto That Had an Adjusted