Six years ago, Alejo Company purchased real property by paying $250,000 cash and giving the seller its $1 million note for the balance of the purchase price. This year, Alejo deducted $30,800 depreciation on the property and made a $125,000 principal payment on the note. Which of the following statements is false?

Question

Quizplus · Accepted Answer

A) True - Depreciation reduces the adjusted tax basis of the property each year.
B) True - The principal payment reduces the amount of debt owed on the property, thereby increasing the equity.
C) False - The principal payment reduces the amount of debt owed on the property and does not affect Alejo's tax basis in the property. However, the tax basis of the property is reduced each year due to depreciation.
D) False - Choice C is false, therefore this statement cannot be true.

Six Years Ago, Alejo Company Purchased Real Property by Paying