On November 4, 2013, Blue Company acquired an asset (27.5-year residential real

Question

On November 4, 2013, Blue Company acquired an asset (27.5-year residential real property) for $300,000 for use in its business. In 2013 and 2014, respectively, Blue took $963 and $7,692 of cost recovery. These amounts were incorrect because Blue applied the wrong percentages (i.e., those for 39-year rather than 27.5-year property). Blue should have taken $1,365 and $10,908 of cost recovery in 2013 and 2014, respectively. On January 1, 2015, the asset was sold for $250,000. If required, round all computations to the nearest dollar. Click here to access Table 5.3 of the textbook. a. The adjusted basis of the asset at the end of 2014 is $ . b. The cost recovery deduction for 2015 is $ . c. The loss on the sale of the asset in 2015 is $ .

Explanation / Answer

a. The adjusted bases = cost of assets - (cost recovery in 2013 and 2014)

= 300000 - 1365 - 10908

= $287727

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