2023SB1M1 — CHAPTER 3 — DISPOSITIONS Review Question 1 Robert owns a machine shop. He bought a piece of equipment and placed it in service last year. Months later, he added some improvements to make his work easier. Robert’s tax preparer will need all the following information to determine the original basis except: a) The cost of the installation b) The manufacturer of the equipment c) The amount of sales tax d) The cost of the equipment The name of the manufacturer, although interesting, is NOT needed to determine the depreciable basis. 2 The equipment Robert bought last year doesn’t meet his needs. He found a buyer that will pay him more than what he paid for the equipment. To determine the taxable gain, Robert must know the adjusted basis. Which item is not needed to determine the basis? This is the purchaser’s cost and, wi a) The depreciation recorded on the equipment factor into the basis calculation of i b) The cost of shipping the equipment to the purchaser c) How much section 179 expensing was recorded on the equipment d) The amounts of any rebates Review Question 3 Jonathan, a sole proprietor, purchased business equipment at a cost of $10,000 during the tax year. He paid $500 in sales tax and $350 in delivery fees. His depreciation for the tax year was $2,250. What is his adjusted basis for the equipment on January 1st of the following tax year? a) $10,000 2)) 212328 Basis must be adjusted for Sales Tax, Delivery Fees, and Depreciation| d) $ 8,600 ($10,000 +$500 +$350) — $2,250 = $8,600. Review Question 4 Mary’s aunt Susan gave her a network computer system on December 31, 2021, because she was no longer using the system in her business. Susan purchased the system in 2017 for $30,250, and she placed the system in service on December 15, 2017. Susan obtained an appraisal, and the FMV at the time of the gift was $13,275. Susan’s adjusted basis in the system was $6,192 when she gave it to Mary. Mary plans to use the system in her office beginning January 1, 2022. What is Mary’s basis in the network system? a) $30,250 - . . . ; b; §13 275 The donee’s basis in the gifted property is the donor’s adjusted basis c) $ 6:192 at the time of the gift if the donee holds the gift as business property. d$ 0 William purchased an office building in 2021 for $150,000 (building only). He did not incur any other costs and placed the building in service on January 15, 2022. On August 15, 2022, he was required to replace the roof. The roof replacement cost $12,000, including installation. What basis amount and recovery period should William use for these two items? a) $162,000 for the building with a 39-year recovery period b) $150,000 for the building with a 39-year recovery period; $12,000 for the roof with a 15-year recovery period c) $150,000 for the building and $12,000 for the roof. Both assets should use a 39-year recovery period. d) $150,000 for the building with a 39-year recovery period. The $12,000 roof should be expensed in the current year.
