Greg traded computer equipment used in his business to a computer dealer for some new computer equipment. Gregg originally purchased the computer equipment for $15,000 and it had an adjusted basis of $11,000 at the time of the exchange. Gregg also received a used copier worth $2,000 in the transaction. What is Gregg's adjusted basis in the new equipment after the exchange?

Year 1:

Recognized gain = 30,000 * 60,000/210,000 = 8,571

Basis in asset = Not applicable

Year 2:

Recognized gain = 150,000/210,000 * 30,000 = 21,429

Explanation:

Computer equipment:

Realized gain = 12,000 - 11,000 = 1,000

Recognized gain = 1,000 (lesser of realized gain and boot received ($2,000))

Basis in new asset = 12,000 (basis of asset given plus gain recognized)

Office building:

Realized gain = 62,000 - 53,000 = 9,000

Recognized gain = 7,000 (lesser of realized gain and boot received ($7,000))

Basis in rental building = 53,000 + 7,000 = 60,000

Realized gain = 210,000 - 180,000 = 30,000

Year 1:

Recognized gain = 30,000 * 60,000/210,000 = 8,571

Basis in asset = Not applicable

Year 2:

Recognized gain = 150,000/210,000 * 30,000 = 21,429