Question

Q. Nigel purchased a blending machine for $150,000 for use in his business. As to the machine, he has deducted $32,200 of depreciation, maintenance costs of $5,200, and repair costs of $4,000. Calculate Nigel’s adjusted basis for the machine.

Answer 1

The adjusted basis of an asset refers to the net cost of an asset after adding the related capital expenditures and reducing the depreciation provided.

Adjusted Basis = Cost of the Machine + Capital Expenditure Incurred - Deductions for Depreciation

Cost of the Machine	$ 150,000
Less: Depreciation	$ 32,200
Adjusted Basis	$ 117,800

Repairs Cost and Maintenance costs are not capital expenditures. Hence they are not deducted while calculating the adjusted basis. These Expenditures are allowed as a deduction in the tax year in which they are incurred