Question

Leker exchanged a van that was used exclusively for business and had an adjusted tax basis of $20,000 for a new van. The new van had a fair market value of $10,000, and Leker also received $3,000 in cash. What was Leker's tax basis in the acquired van?

a. $13,000
b. $17,000
c. $20,000
d. $7,000

Answer 1

Leker's tax basis in the acquired van is;

b. $17,000

Step-by-step explanation:

Step 1: Determine adjusted tax basis

adjusted tax basis=$20,000

Step 2: Determine the realized gain or loss from the exchange

The realized gain or loss can be defined as the amount of gain or loss from the sale of an asset. In our case, it can be expressed as;

G/L=R-A

where;

G/L=realized gain or loss

R=realized value from the exchange

A=adjusted tax basis

In our case;

G/L=unknown

R=FMV+C, and;

F.M.V=fair market value=$10,000

C=cash=$3,000

R=10,000+3,000=$13,000

A=$20,000

replacing;

G/L=(13,000-20,000)=-$7,000

Leker has a realized loss on this exchange of $7,000

Step 3: Determine tax basis on acquired van

Leker's tax basis on the acquired van=Fair market value of the acquired van+postponed loss

where;

Fair market value of the acquired van=$10,000

postponed loss=$7,000

replacing;

Leker's tax basis in the acquired van=(10,000+7,000)=$17,000

Leker's tax basis in the acquired van=$17,000