Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?
A) $0.
B) $2,000.
C) $7,000.
D) $9,000.
E) None of these.

Question

Quizplus · Accepted Answer

Arlington recognizes a gain of $2,000, which is the lesser of the realized gain ($9,000) or the boot received ($2,000). The realized gain is calculated as the fair market value of the new machinery and office equipment ($35,000 + $2,000) minus the adjusted basis of the old machinery ($28,000).

Arlington LLC Traded Machinery Used in Its Business to a Machinery