Question

Sebastian purchases two pieces of equipment for $151,000. appraisals of the equipment indicate that the fair market value of the first piece of equipment is $105,700 and that of the second piece of equipment is $166,100. what is sebastian's basis in these two assets?

Answer 1

Sebastian's basis in the two assets is determined by allocating the total purchase price in proportion to the fair market values of the equipment.

The question relates to establishing the basis of two assets that Sebastian purchased for a total amount of $151,000. To determine the basis of each piece of equipment, one typically allocates the total purchase price based on the proportionate fair market value of each piece. Since the fair market values are $105,700 and $166,100, this implies a total fair market value of $271,800. Therefore, the basis of the first piece of equipment is ($105,700 / $271,800) * $151,000 and the basis of the second piece is ($166,100 / $271,800) * $151,000.