Question

Bobbie exchanges business equipment (adjusted basis $160,000) for other business equipment that has a FMV of $140,000. Bobbie also receives $30,000 cash. Bobbie's basis in the new equipment is

A) $140,000
B) $130,000
C) $170,000
D) $160,000

Answer 1

The basis of the new equipment in the described scenario is $130,000. This is calculated by taking the adjusted basis of the old equipment ($160,000), subtracting the cash received ($30,000), and making adjustments for any recognized gain or loss (none in this case).

Step-by-step explanation:

The student has asked how to determine the basis in new business equipment acquired through an exchange that involved both property and cash. In such situations, the basis of the new property is generally the same as the basis of the property given up, reduced by any money received, and increased by any gain recognized or decreased by any loss recognized on the exchange.

Here's the calculation based on the provided figures: Bobbie's adjusted basis in the old equipment is $160,000. Bobbie receives $30,000 cash and exchanges the old equipment for new equipment with a fair market value (FMV) of $140,000. The basis of the new equipment would be:

Adjusted Basis of Old Equipment - Cash Received + Gain Recognized (If Any) - Loss Recognized (If Any) = Basis of New Equipment $160,000 - $30,000 + $0 - $0 = $130,000, which makes the correct answer choice (B) $130,000.