Tarletto Inc.'s current year income statement includes a $229,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Tarletto's book basis in the new asset is $229,000 greater than its tax basis.

Question

Quizplus · Accepted Answer

If the exchange is nontaxable, the book basis of the new asset is equal to the book basis of the old asset surrendered, plus any cash paid, and the tax basis of the new asset is equal to the tax basis of the old asset surrendered, reduced by any cash paid, but increased by any gain recognized. Therefore, if there is a nontaxable exchange with a $229,000 gain recognized, the book basis in the new asset will be $229,000 greater than the tax basis.