#74 In problem 89 of Chapter 9, you were asked to determine the initial basis of Emelio

and Charitas business, investment, and personal use assets. In this problem,

you are to determine the adjusted basis of the assets as of December 31, 2013.

You should disclose all calculations made to arrive at the December 31, 2013, basis

values. For depreciable assets and amortizable assets, present the basis in the following

form:

Asset: _________________________________

Date acquired: _________________________

Initial basis: _________________________

Depreciation/Amortization life: ________

Depreciation/Amortization deducted to December 31, 2013: __________

(per the schedule here)

Basis on December 31, 2013:_____________

Depreciation/Amortization Schedule:

Year Depreciable Basis Depreciation Percentage Depreciation

Assume that Emelio and Charita have always deducted the maximum depreciation

allowable. However, in 2013, because their income is less as a result of the

opening of Charitas new business, they do not wish to expense any eligible

amounts or claim bonus depreciation.

Here is the information from the answer to chapter 9 #89

a. .

Answer:

Emelio's Business Assets:

Land and Building - Purchase Price = $120,000

Land = ($10,000 $40,000) x $120,000 = $30,000

Building = ($30,000 $40,000) x $120,000 = $90,000 + $3,000 = $93,000

b.

Answer:

Computer Equipment -

Emelio has acquired computer equipment in bargain purchase. Therefore, he shoul recognize as an income as difference between fair market value of computer ($20,000) and $16,000 which he paid for computer. Emelios basis in computer is $20,000. Here $4,000 he recognizes as an income from bargain purchase is added to $16,000, he paid for computer.

Basis in Computer:

$16,000 cost + $4,000 bargain purchase

= $20,000

c. Answer:

Printer - Here Personal property converted for the business use. Basis is lesser of adjusted basis ($8,000) or fair market value ($4,000) at date of conversion (this also depreciable basis).

Split-basis rule: Gain basis is = $8,000

Loss and depreciation basis is = $4,000

d.

answer:

Here office Furniture Purchased - Basis in furniture is $2,200 - it is cost.

e.

Answer:

Charita's Business Assets are :

Charita Automobile - $19,500 purchase price add: + $1,500 for sunroof = $21,000

Automobile is mixed-use asset. Basis must be allocated between the business and the personal use:

Business Use are

= (6,800 10,000 mile) x $21,000 = $14,280

Personal Use are

= (3,200 10,000 miles) x $21,000 = $ 6,720

f.

Answer:

The Home Office - Here Charita could deduct costs associated with home office. The portion of basis of home must be allocated to home office space. At a date , home office usage began, basis of a house is $120,000 (Here $20,000 is allocated to land). Based on the square footage, basis of a home office would be $7,200:

[(12 x 12 = 144) 2,400] x $120,000 = $7,200

g.

answer:

Investment Assets:

The Rental House - Basis of the property received in the divorce is equal to adjusted basis of a property. Therefore, Charita's basis as a personal residence is $50,000 adjusted basis. At date of the conversion to business use, basis is lesser of adjusted basis or fair market value of property. Rental house basis is Charita's $50,000 adjusted basis. Basis of the land & building must be determined separately:

Land = ($10,000 $80,000) x $50,000 = $ 6,250

Building = ($70,000 $80,000) x $50,000 = $43,750

h.

answer

The Inherited Stock - Here Inherited property is valued at the fair market value. Because executor elected an alternate valuation date, property is valued at 6 months after date of death. This gives stock a basis of $13,300.

i.

Answer:

The Stock in the Software Corporation - Here basis is equal to purchase price plus other costs for acquiring stock. asis is $20,400.

Purchase Price (1,000 x $20) $20,000

Brokerage Commission 400

Total Basis $20,400

Stock split would increase number of shares of 2,000 and reduces cost per share from value of $20.40 per share that is arrived as ($20,400 1,000) to the value $10.20 which is arrived as ($20,400 2,000) per share. Note : total investment in stock is unchanged.

j.

Answer:

The stock from father - Fair market value of gifted property will be greater than donor's basis. Thus, his (Emelio's) basis is his father's basis or

=$35 per share x 100 shares

= $3,500.