Question

31. Alfredo, a self-employed patent attorney, flew from his home in Chicago to Miami, had lunch alone at the Chicago airport, conducted business in the afternoon, and returned to Chicago in the evening. His expenses were as follows: Airfare $800 Airport parking (Chicago) 50 Lunch 40 Taxis (Miami) 42 What is Alfredo’s deductible expense for the trip?

32. Anne sells a rental house for $300,000 (adjusted basis of $255,000). During her ownership, $60,000 of losses have been suspended under the passive activity loss rules. Determine the tax treatment to Anne on the disposition of the property. 33. 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. 3

Answer 1

1. Alfredo's Deductible expenses for the trip is $892

Particulars	Amount
Airfare	$800
Airport Parking (Chicago)	$50
Taxis (Miami)	$42
Total	$892

As Alfredo was not away from home, his lunch expense is not deductible

2. Because Anne disposes of her entire interest in the passive activity, she is able to recognize fully the losses that had been suspended during the years of her ownership. With the current utilization of the $60,000 suspended loss, a net deductible loss of $15,000 results, which is treated as a loss that is not from a passive activity

Particulars	Amount
Net Sales Price	$300,000
Less: Adjusted Basis	($255,000)
Total Gain	$45,000
Less: Suspended Losses	($60,000)
Deductibe Loss	($15,000)

3. Nigel’s adjusted basis for the machine is calculated as follows

Particulars	Amount
Cost	$150,000
Less: Depreciation	($32,200)
Adjusted Basis	$117,800

Neither the maintenance cost of $5,200 nor the repair cost of $4,000 are capital expenditures. These costs are deducted in the tax year incurred .