Final answer:
The statement that when non-like-kind property other than cash is received as boot, the amount of the boot is the property's fair market value, is true. Boot is taxable to the extent of gain realized on the exchange, and fair market value is a critical concept for determining tax liability during like-kind exchanges.
Step-by-step explanation:
The statement that when non-like-kind property other than cash is received as boot in a transaction, and the amount of the boot is the property's fair market value, is true. In the context of a like-kind exchange under United States tax law, specifically Section 1031 of the Internal Revenue Code, boot refers to any additional value that is received in the exchange that is not considered like-kind property. This boot is taxable to the recipient to the extent of gain realized on the exchange.
For instance, if you exchange real estate used for business or investment purposes for other business or investment real estate of a like-kind, but in the transaction, you also receive a car or another non-like-kind item, this additional item is considered boot. The fair market value of this car would need to be reported as part of the transaction and may trigger tax consequences. Generally, fair market value is considered the price that the property would sell for on the open market between a willing buyer and seller.
For tax purposes, understanding the concept of boot and fair market value is critical when engaging in like-kind exchanges. Any boot received must be accounted for to determine the correct tax treatment of the transaction.