Question

Regarding the conversion of a personal use asset to business or income-producing use, which of the following statements is correct?

A) The loss basis is always the asset's fair market value on the date of conversion.
B) The loss basis is always the asset's adjusted basis on the date of conversion.
C) The loss basis is the higher of the asset's adjusted basis or fair market value on the date of conversion.
D) The loss basis is the lower of the asset's adjusted basis or fair market value on the date of conversion.

Answer 1

When converting a personal use asset to business use, the loss basis for future disposals is the lesser of the asset's adjusted basis or its fair market value on the date of the conversion.

Step-by-step explanation:

Regarding the conversion of a personal use asset to business or income-producing use, the correct statement is: The loss basis is the lower of the asset's adjusted basis or fair market value on the date of conversion. This means when a personal asset is converted to business use, if a loss is claimed on its eventual sale or disposition, the basis for determining the loss is either what was initially paid for the asset (adjusted basis) minus any depreciation (if applicable), or the market value at the time of its conversion, whichever is less.