Chapter 2, Problem 61P

Determine the taxpayer’s adjusted basis in each of the following situations.

If any changes are made in the original basis of the asset, explain why they are necessary.

1. a. Simone purchases 300 shares of Wilguess, Inc., stock in 2017 for $6,300. In 2017 and 2018, Wilguess pays cash dividends of $2 per share. In 2019, Wilguess pays a 40 percent stock dividend (nontaxable), and Simone receives an additional 120 shares of stock.
2. b. Symbol Corporation purchases a building in 2016 at a cost of $240,000. Annual maintenance costs on the building are $80,000. In 2018, Symbol adds a wing to the building at a cost of $60,000. In 2019, the building is painted at a cost of $25,000. Symbol deducts $4,800 in depreciation in 2016, $7,300 in 2017, and $8,100 in 2018 and 2019.
3. c. Lorissa purchases land as an investment in 2017 for $33,000. Property taxes on the property are $400 per year. In 2018, Lorissa is assessed $2,000 by the county assessor for her share of a sidewalk that the county builds adjacent to the land. Lorissa pays the assessment in 2019.
4. d. The Barton Brothers Partnership purchases a computer in 2017 for $8,000. The partnership elects to deduct the entire cost of the computer in 2017. In 2019, Barton Brothers spends $300 to repair the computer.