Question

Three years ago, Sydney remodeled her home. Rather than discarding some shelving units that were in her home, she moved them to the employee lounge of the business that she owns. Her original cost (basis) in the shelves was $3,500. The fair market value of the shelves when she converted them to business use was $1,500. Sydney has taken depreciation on the shelves of $300. She sold the shelving units this year for $1,000. What is the amount of her basis and the amount of the gain or loss recognized on the sale of the shelves?

Answer 1

The correct answers are, $1200 and -$200.

Sydney has taken depreciation on the shelves of $300. The amount of basis and the amount of the gain or loss recognized on the sale of the shelves are $1200 and -$200 respectively.

Explanation:

Fair market value at the date of conversion = $1,500

Depreciation on the Shelves = $300

Basis = Fair market value - Depreciation

Basis = $1500 - $300 = $1,200  

So Basis = $1,200

Now

Sale Price of Shelves = $1,000

Adjusted Basis = $1,200

Loss would be = Sale price - Adjusted Basis

Loss = $1000 - $1200

Loss = -$200

So, Loss = $200

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