i just dont understand how you calculate the new basis in the property when there is boot. Also, how come we bifurcate the transaction when there is property as boot or stocks but NOT when its money...in the code, money=boot too
Here's from my outline on this topic:
CALCULATING THE BASIS OF PROPERTY IN A LIKE KIND EXCHANGE
Formula: Gain Recognized = Minimum (Gain Realized, Fair Value of Boot Received)
Formula for Calculating Basis: Unrealized Gain immediately prior to the Exchange = Gain Recognized + Unrealized Gain immediately after the Exchange
Example: Suppose I swap a cow pasture with a basis of 10 and a fair value of 100 for 40 of cash and a warehouse with a fair value of 60. Assuming proper motives (i.e., productive use in a trade or business or investment), the cow pasture and the warehouse are of like kind. Thus, my recognized gain is the lesser of (1) my realized gain and (2) the value of boot received. From IRC § 1001, it follows that my realized gain is 90 (40 of cash and 60 for property = 100 minus basis of 10 = 90). The boot received is 40 (i.e., the cash). Thus, my recognized gain is the lesser amount, 40.
Then, using the equation above:
• Prior unrealized gain in warehouse (100-10 =90) = gain recognized (40) + unrealized gain after exchange (X) <--this has to be 50 because of algebra.
• However, there can't be any "unrealized gain" in cash because it's cash, so the 50 has to all be in the warehouse. Therefore, since the fair value of the warehouse is 60, you subtract the entire 50 of unrealized gain, and get a tax basis in the new warehouse of 10. Get it?