Question

John paid $60,000 to replace the roof on a warehouse he used in his business. In addition, he spent $12,500 to demolish and remove the old roof before he could start work on the replacement roof. Which of the following is a correct statement?

Answer 1

Answer:

John paid $60,000 to replace the roof

Explanation:

Answer 2

The correct statement is c. John must add the $72,500 to the original cost basis of the underlying property and retroactively re-calculate depreciation expense on that property from the original placed-in-service date.

Data and Calculations:

Cost of replacing warehouse roof = $60,000

Cost of demolishing and removing old roof = $12,500

The total replacement cost incurred = $72,500 ($60,000 + $12,500).

Answer Options:

a. John must deduct $72,500 unless he elects not to do so.

b. John may claim the $12,500 as a loss on a "partial disposition" unless he elects not to do so.

c. John must add the $72,500 to the original cost basis of the underlying property and retroactively re-calculate depreciation expense on that property from the original placed-in-service date.

d. John may elect to claim the $12,500 as a loss on a "partial disposition."

Thus, the correct statement about the costs incurred by John for the warehouse roof replacement is Option C because roof replacement costs are capitalized.

Learn more about capitalizing roof replacement costs here: brainly.com/question/13626864