Question

Echota, LLC purchased equipment on May 16^th of the current year. The relevant costs are as follows: equipment for $13,000, $1,073 for sales tax, $295 for the annual tune-up, $395 shipping, $500 for installation, $635 for property taxes (an annual tax on business property), and $85 for delivery insurance. What is Echota's tax basis for the machinery?

Answer 1

Echota, LLC purchased equipment on May 16^th of the current year.the tax basis of machinery are the total costs which are added to the purchase price and it is the value at which the assets are capitalised.

The tax basis of assets includes every expenses which are necessary for the assets to be ready to put the assets ready to use and those expenses are not being taken as deduction in the year. Further the one time expenses are added to the basis and not the regular incurring expenses.

The tax basis of machinery will include its purchase price , sales tax paid on acquisition, shipping to bring the machinery and in transit delivery insurance of the machinery.

Further the annual tune up cost is not added to the basis of machinery as it is a regular expenses to be incurred every year, and property tax will also be not added to the basis of the machinery as it is not pertaining to the machinery but towards the property.

Thus the tax basis for the machinery = purchase price + sales tax + shipping+installation + delivery insurance.

Tax basis for the machinery= $13,000 + $ 1,073 + $ 395 + $ 500+ $ 85.

Echota's tax basis for the machinery = $ 15,053