Question

2.Gary inherited a Maine summer cabin on 10 acres from his grandmother. His grandparents originally purchased the property for $500 in 1950 and built the cabin at a cost of $10,000 in 1965. His grandfather died in 1980 and when his grandmother recently passed away, the property was appraised at $500,000 for the land and $650,000 for the cabin. Since Gary doesn’t currently live in New England, he decided that it would be best to put the property to use as a rental. What is Gary’s combined basis in both the land and cabin?

3. At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff’s Palace. Poplock bought and placed in service the following assets during the year:

Asset                                 Date Acquired   Cost Basis

Computer equipment      3/23                       $5,000

Dog grooming furniture  5/12                          $7,000

Pickup truck                      9/17                     $10,000

Commercial building       10/11                    $280,000

Land (one acre)                10/11                    $80,000

Assuming Poplock does not elect §179 expensing or bonus depreciation, what is Poplock’s year 1 depreciation expense for each asset?

4. At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff’s Palace. Poplock bought and placed in service the following assets during the year:

Asset                                 Date Acquired   Cost Basis

Computer equipment      3/23                          $5,000

Dog grooming furniture  5/12                       $7,000

Pickup truck                      9/17                      $10,000

Commercial building       10/11                    $280,000

Land (one acre)                10/11                    $80,000

Assuming Poplock does not elect §179 expensing or bonus depreciation, what is Poplock’s year 2 depreciation expense for each asset?

Answer 1

2.

The basis of inherited property is the fair market value on the date of death or, if elected by the estate, the alternate valuation date if less. Consequently, Gary’s basis will be $500,000 in the land and $650,000 for the cabin.

3.

$5,498, under the half-year convention for personal property, calculated as follows:

Asset	Purchase Date	Quarter	Recovery period	(1) Original Basis	(2) Rate	(1) x (2) Depreciation
Computer equipment	23-Mar	1st	5 years	$5,000	20.00%	$1,000
Dog grooming furniture	12-May	2nd	7 years	$7,000	14.29%	$1,000
Pickup truck	17-Sep	3rd	5 years	$10,000	20.00%	$2,000
Building	11-Oct	4th	39 years	$280,000	0.535%	$1,498
						$5,498

4.

$13,693, calculated as follows:

Asset	Purchase Date	Quarter	Recovery period	(1) Original Basis	(2) Rate	(1) x (2) Depreciation
Computer equipment	23-Mar	1st	5 years	$5,000	32.00%	$1,600
Dog grooming furniture	12-May	2nd	7 years	$7,000	24.49%	$1,714
Pickup truck	17-Sep	3rd	5 years	$10,000	32.00%	$3,200
Building	11-Oct	4th	39 years	$280,000	2.564%	$7,179
						$13,693