I'm seeing a conflict in Becker's explanation regarding like-kind exchange's gain recognition when there's boot received and boot given up. Here are the 2 questions:
CPA-06420:
A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his
business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is
currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The other
party agrees to give the taxpayer a trailer worth $3,500 in addition to the new auto, and the taxpayer agrees to pay
$1,000 cash in addition to the trade-in. What is the gain or loss recognized by the taxpayer in this transaction?
Becker: Gain recognized = $3,000 (the lesser of realized gain of $3,000 or boot received of $3,500)
My question: how come we don't net the boot received of 3500 with the boot paid of 1000? SEE BELOW.
CPA-06429:
A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his
business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is
currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The taxpayer
agrees to assume a liability secured by the new auto of $1,000. The other party also agrees to assume a liability
secured by the taxpayer's old auto of $3,500. What is the gain or loss recognized by the taxpayer on this
transaction?
Becker: Gain recognized = $2,500 [the lesser of realized gain of $3,000 or net relief from liabilities (boot received)
of $2,500]
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