Question

Fred and Sarajane exchanged equipment in a qualifying like-kind exchange. Fred gives up equipment with an adjusted basis of $12,000 (fair market value of $15,000) in exchange for Sarajane's equipment with a fair market value of $13,000 plus $2,000 cash. What is Sarajane's basis in the equipment received in the exchange, assuming her basis in the equipment given up was $12,000?
a.$15,000
b.$14,000
c.$12,000
d.$0
e.None of these choices are correct.

Answer 1

Answer:

Option B $14000

Explanation:

The reason is that the tax adjusted base of the new acquiring asset due to the exchange of asset will be equal to the sum of tax adjusted basis of the Fred's equipment and the additional amount paid.

So here:

New Adjusted base = Old adjusted base + Cash paid

New Adjusted base = $12,000 + $2,000 = $14,000

So the option B is the correct option.