Homework Answers
Computation of basis of the machine for cost recovery:
The correct option is
- $90000
Explanation:
It was given that the machine has been converted from personal use to rental property.
And given,
Cost of the machine (purchase price) = $120000
Fair market value of machine as on date of conversion = $90000
The basis of property/asset which is converted from personal use to rental use have basis of lower of
• Fair market value on date of conversion or
• Cost of the property or asset
Therefore,
The basis of machine for cost recovery
= lower of FMV or cost
= lower of $90000 or $1200000
= $900000
_______×________
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