Question

During 2019, Karan acquired the following assets for use in her sole proprietorship: Asset                           &n

During 2019, Karan acquired the following assets for use in her sole proprietorship:

Asset                                 Cost                Date Place in Service

Computers & Info. System          $400,000                  03/31

Assembly Equipment                   1,200,000                   08/15

Warehouse 700,000 11/13

a. What is the maximum amount of cost recovery Karen can claim with respect to these assets in 2019?

b. What is each asset’s adjusted basis as of December 31, 2019?

c.   Assume Karan plans to sell the warehouse on May 5, 2021. What will Karan’s adjusted basis in the warehouse be for purposes of determining her gain or loss on the sale?

Business   Accounting   
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Answer #1

A. Assuming usefule life of assets as 5 years (60 months):

1.Computation of cost recovery-

Computer & Info Systems

No of months in 2019 9 months

Cost for 2019 $400000/60*9=$60000

2.Assembly Equipment

No of months in 2019 3.5 Months

Cost for 2019 $1200000/60*3.5= $70000

3.Warehouse

No of months in 2019 1.5 Months

Cost for 2019 =700000/60*1.5=$17500

Total Cost=$147500.

B.Each asset’s adjusted basis as of December 31, 2019

Computer=$400000-$60000=$340000

Assembly Equipment= $1200000-$70000=$1130000

Warehouse=$700000-$17500=$682500

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