Question

1.Emily purchased a building to store inventory for her business. The purchase price was $760,000. Beyond this, Emily incurred the following necessary expenses to get the building ready for use: $10,000 to repair the roof as routine maintenance (did not improve or prolong the life of the asset), $6,000 to make the interior suitable for her finished goods, and $600 in legal fees. What is Emily’s cost basis in the new building?

2.Meg O’Brien received a gift of some small-scale jewelry manufacturing equipment that her father had used for personal purposes for many years. Her father originally purchased the equipment for $1,900. Because the equipment is out of production and no longer available, the property is currently worth $4,000. Meg has decided to begin a new jewelry manufacturing trade or business. What is her depreciable basis for depreciating the equipment?

Answer 1

Both answers are attached below

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Note: In answer 1, $10,000 is not capitalized as it did not improve or prolong the life of the asset, and thus it is not capitalized.

Answer 1 The cost of Basis of Building will be the purchase price including all necessary expenses incurred in connection to get ready for use Particulars Amount ($) Explanation Price paid to acquire Building Improvements made to building Legal Fees incurred Cost basis in new building 760,000 6,000 (Costs related to Business preparation) 600 (Costs related to Business preparation) 766,600 Answer 2 The depreciable basis for depreciating the equipment will be the Price at which it was originally purchased by her father, the equipment at $1,900. Therefore, the carryover basis will be applicable here from the donor (Father). Meg O'Brien's Depreciable basis in the Equipment will be $1,900