A corporation exchanges machinery plus $20,000 cash for new machinery worth $34,000. At the time of the exchange, the corporation's adjusted basis in the machine it exchanges is $16,000 and its fair market value is $14,000. What amount will the corporation recognize on the exchange and what will be its depreciable basis in the new machine?

Question

Quizplus · Accepted Answer

the realized loss is $2,000 ($34,000 less the sum of $16,000 and $20,000), but none is recognized
 the basis in the new machine is the basis of the old machine of $16,000 plus the boot given of $20,000 or $36,000. Alternatively, the postponed loss of $2,000 is added to the FMV of the new machinery ($34,000 plus $2,000 =
$36,000).

A Corporation Exchanges Machinery Plus $20,000 Cash for New Machinery