Question

Sebastian purchases two pieces of equipment for $100,000. appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. what is sebastian's basis in these two assets? do not round your interim calculations. if required, round your final answers to the nearest dollar. sebastian's basis for the first piece of equipment is____and____for the second piece of equipment.

Answer 1

Sebastian's basis for the first piece of equipment is $40,000 and $60,000 for the second piece of equipment, calculated by allocating the total purchase price based on each piece's proportion of the total fair market value.

Step-by-step explanation:

Sebastian purchased two pieces of equipment for a total of $100,000. To find Sebastian's basis for each piece of equipment we need to allocate the total purchase price between the two pieces based on their relative fair market values (FMVs). The first piece has a fair market value of $72,000 and the second one $108,000. This makes the total FMV $180,000 ($72,000 + $108,000).

To calculate each piece's share of the total cost, we perform the following steps:

1. 
   
3. Calculate the proportion of each item's FMV to the total FMV.
4. 
   
6. Apply that proportion to the total amount paid.

For the first piece: ($72,000 / $180,000) × $100,000 = $40,000

For the second piece: ($108,000 / $180,000) × $100,000 = $60,000

Therefore, Sebastian's basis for the first piece of equipment is $40,000 and $60,000 for the second piece of equipment.