Leker exchanged a van, used exclusively for business with an adjusted tax basis of $20,000, for a new van worth $10,000 and also received $3,000 in cash. What is Leker's tax basis in the new van? a. $13,000 b. $17,000 c. $20,000 d. $7,000

Option a is correct. $17,000 is the tax basis in the van. The basis for like-kind exchanges is computed as follows:

Basis of old property$ 20,000 

Less: Boot received(3,000) 

New basis$ 17,000

Alternate calculation: FMV of new van $10,000 + deferred loss $7,000 = New basis $17,000.

The general rule is the gain is recognized to the extent boot is received. As the transaction results in a loss to Leker (he received an asset worth $10,000 plus $3,000 cash less a $20,000 tax basis equals $7,000 loss) no gain is recognized and the $3,000 received reduces his basis in the new asset.

Option a is correct. $17,000 is the tax basis in the van. The basis for like-kind exchanges is computed as follows:

Basis of old property$ 20,000 

Less: Boot received(3,000) 

New basis$ 17,000

Alternate calculation: FMV of new van $10,000 + deferred loss $7,000 = New basis $17,000.

The general rule is the gain is recognized to the extent boot is received. As the transaction results in a loss to Leker (he received an asset worth $10,000 plus $3,000 cash less a $20,000 tax basis equals $7,000 loss) no gain is recognized and the $3,000 received reduces his basis in the new asset.