Question

In each of the following situations, determine the depreciable basis of the asset:

a. Rudy inherits his father's pickup truck. The truck is immediately placed in service in Rudy's delivery business. The fair market value of the truck at the date of Rudy's father's death is $8,000, and the value on the alternate valuation date is $8,500. The executor of the estate does not make any special elections. The truck originally cost Rudy's father $15,000.

b. Maline purchases an office building to use as the main office of her mail order business. She pays the seller $100,000 in cash. In addition, she gives the seller her personal note for $250,000 plus 10 acres of real estate. At the date of the transaction, the real estate, which cost $20,000, is worth S50,000. Property tax records show the land is assessed at $10,000 and the building is assessed at $40,000.

c. Steve owns a computer that he bought for $3,000. The computer was used for personal family activities. When he starts his business, Steve takes the computer to his new office. The computer is worth $500 when he begins using it in his business.

d. Martha's aunt Mabel gives her a used table, which had been stored in Mabel's garage, to use in the conference room in Martha's office. Mabel paid $1,200 for the table several years ago, and it is worth only $700 at the date of the gift. Mabel does not pay any gift tax on the transfer.

Answer 1

Answer and Explanation:

a. Rudy's basis is equal to the valuation if the estate tax is applicable. The truck is valued at the date of death in such a scenario and the basis at that date is equal to the fair market value of $8,000. Please notice that pickups qualify for section 179. When elected, the depreciable basis in the asset is equal to zero.

The Answer is $8,000

b. Land and the building purchase price = Cash + Debt + Real estate - FMV

= $100,000 + $250,000 + $50,000

= $400,000

So, On the assessed property tax values

Allocated to the land and the remaining = Land and the building purchase price × Assessed land ÷ Worth amount

= ($400,000 × ($10,000 ÷ $50,000))

= $80,000

Now,

the Depreciable basis of the building = Land and the building purchase price × (Building assessed ÷ Worth amount)

= ($400,000 × ($40,000 ÷ $50,000))

= $320,000

c. When the adjusted base of the property at the conversion date exceeds the property's of FMV, the value of the personal property transferred to a company will be considered as subject to the split-basis law. So Steve's depreciable basis in the present situation is $500

The Answer is $500.

d. When the basis reaches the FMV at the date of the gift, the split-basis rule applies for gifts. And in the present case, Martha's depreciable basis is equivalent to the fair market value, $700

The Answer is $700.