Question

1. Calculate the adjusted basis as of 12/31/19 of Tony’s tractor based on the information provided...

1. Calculate the adjusted basis as of 12/31/19 of Tony’s tractor based on the information provided below.

• Original cost when placed in service on 1/1/2017 was $40,000

• Depreciation taken in 2017, 2018 and 2019 totaled $32,000

• New tires for tractor purchased in 2019 for $700

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Answer #1

Adjusted basis is calculated by by taking into consideration the original cost of the asset plus any capital expenditures which can either increase the the value of the assrt or make it last longer less accumulated depreciation.

New tires purchase for tractor will be added to the the original cost because it is treated as capital expenditure which will help in better working of the asset and will last long

Adjusted basis as of 12/31/2019

Original cost = 40,000

New tire = 700

Less depreciation = ( 32,000)

Tot adjusted basis = 40,000 + 700 - 32,000 = $8,700

Therefore the correct answer is = $8,700

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