Question

Nicky receives a car for Sam as a gift. Sam paid $48,000 for the car. He had used the car for business purposes and had deducted $10,000 for depreciation up to the time he gave the car to Nicky. The fair market value of the car is $33,000. a. Assuming that Nicky uses the car for business purposes, what is her basis for depreciation? b. Assume that Nicky deducts depreciation of $6500 and then sells the car for $32,500. What is are recognized gain or loss? c. Assume that Nicky deducts depreciation of $6500 and then sells the car for $20,000. What is are recognized gain or loss?

Answer 1

Answer:

A.Basis for depreciation=$38,000 gain

Loss basis =$33,000 (Fair market value)

B.Realized gain$ 1,000

C. Realized loss($ 6,500)

Explanation:

A. Calculation for basis for depreciation

Basis for depreciation =$48,000-$10,000

Basis for depreciation=$38,000 gain

Loss basis =$33,000 (Fair market value)

B.Calculation for her recognized gain or loss

Amount realized$32,500

Less Adjusted basis 31,500

( $38,000 - $6,500)

Realized gain$ 1,000

C. Calculation for her recognized gain or loss?

Amount realized$20,000

Less Adjusted basis $26,500

( $33,000 - $6,500)

Realized loss($ 6,500)