Question

If boot is received in a § 1031 like - kind exchange and gain is recognized, which formula correctly calculates the basis for the like - kind property received?

a. Adjusted basis of like - kind property surrendered + gain recognized - fair market value of boot received.
b. Fair market value of like - kind property surrendered + gain recognized + fair market value of boot received.
c. Fair market value of like - kind property received - postponed gain.
d. Only a. and c.

Answer 1

The correct formula for calculating the basis of like-kind property received in a § 1031 exchange when gain is recognized and boot is received is the fair market value of the property received minus the postponed gain. The correct answer is c. Fair market value of like - kind property received - postponed gain.

Step-by-step explanation:

When gain is recognized on a § 1031 like-kind exchange, the correct formula to calculate the basis of the like-kind property received is as follows:

c. Fair market value of like-kind property received - postponed gain.

This means that the taxpayer's basis in the new property is the fair market value (FMV) of the property received, reduced by any gain that has been deferred (postponed) as a result of the like-kind exchange.

If boot (additional value received in the transaction that is not like-kind property) is received, it may cause some gain to be recognized, but it does not directly affect the basis calculation formula presented. Instead, the receipt of boot may affect the amount of gain that is postponed and, consequently, the basis of the property received.