58. Nicky receives a car from Sam as a gift. Sam paid $40,000 for the car. He ha

Question

58. Nicky receives a car from Sam as a gift. Sam paid $40,000 for the car. He had used it for business purposes and had deducted $16,000 for depreciation up to the time he gave the car to Nicky. The car fair market value of the car is $21,000.
a. Assuming Nicky uses the car for business purposes, what is her basis for depreciation?
b. Assume Nicky deducts depreciation of $5,500 and then sells the car for $20,000. What is her realized gain or loss?
c. Assume Nicky deducts depreciation of $5,500 and then sells the car for $14,000. What is her recognized gain or loss?

Explanation / Answer

sam paid $40k sam deducted $16k for business purposes(depreciation) fair value was $21k Nicky's basis for depreciation = 16k$, as she had been deducted that much. b) nicky bought at (40k-16k)$ = 24k$ she removes depreciation of $5,500 sells at 20,000$ her loss = (24k - 20k)$ = 4k$ = $4,000 c) deducts depreciation of $5,500 and sells at $14,000 her loss = (14k - 24k )$ = 10k$ = $10,000 pl rate lifesaver :)

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