Ko exchanges computer equipment five-year property)with an adjusted basis of $9,000 for a business auto five-year property)worth $6,000.Ko also receives cash of $5,000.What are the recognized gain or loss and the basis of the new auto?

Question

Quizplus · Accepted Answer

To calculate the gain or loss, we need to compare the adjusted basis of the computer equipment ($9,000) with the fair market value of the business auto ($6,000) and the cash received ($5,000). Since the fair market value of the auto is less than the adjusted basis of the equipment, we have a recognized loss of $3,000 ($9,000 - $6,000).

To calculate the basis of the new auto, we need to add the recognized loss to the fair market value of the auto. Therefore, the basis of the new auto is $11,000 ($6,000 + $3,000). Thus, the best choice is B.

Ko Exchanges Computer Equipment Five-Year Property)with an Adjusted Basis of $9,000