Question

Janey purchased machinery on April 8 th of the current year. The relevant costs for the year are as follows: machinery for $10,000, $800 shipping, $50 for delivery insurance, $500 for installation, $750 for sales tax, $150 for the annual tune up, and $200 of property taxes (an annual tax on business property). What is Janey's tax basis for the machinery?

Answer 1

Janey's tax basis for the machinery is $12,300, which includes the cost of the machinery, shipping, delivery insurance, installation, sales tax, and property taxes related to the purchase.

Step-by-step explanation:

The tax basis for machinery includes the purchase price plus any additional costs necessary to get the machinery ready for use. In Janey's case, her tax basis would be the sum of the cost of the machinery, shipping costs, delivery insurance, installation fees, sales tax, and property taxes that apply to the machinery. Annual maintenance costs, such as the annual tune-up, are generally not capitalized and therefore not included in the tax basis.

• Cost of machinery: $10,000
• Shipping: $800
• Delivery insurance: $50
• Installation: $500
• Sales tax: $750
• Property taxes: $200

Adding these amounts together, Janey's tax basis for the machinery would be: $10,000 + $800 + $50 + $500 + $750 + $200 = $12,300.