1. Daniel purchased his home for $500,000. As a sole proprietor, he operated a certified public accounting practice in his home. For this business, he uses one room exclusively and regularly as a home office. In year 1, $3,042 of depreciation was deducted on his income tax return. In year 2, Daniel sustained losses in his business and calculated depreciaiton as $3,175. What is the adjusted of the home at the beginning of year 3?

2. Erica owns City of Stars bonds with a face value of $10,000. She purchased the bonds on January 1,2016 for $11,000. The maturity date is December 31,2025. The annual interest rate is 8%. What is the amount of taxable interest income that Erica should report for 2016, and the adjusted basis for the bonds at the end of 2016,assuming straight-line depreciation is appropriate?

3. Which of the following statements is false?

A. A realized gain that is never recognized results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes

B. A realized gain on which recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes

C. A realized loss that is never recognized results in the permanent recovery of less than the taxpayer's cost or other basis for tax purposes

D. A realized loss on which recognition is postponed results in the temporary recovery of less than the taxpayer's cost or other basis for tax purposes

E. All of the above