Bulky Company sold an asset on the first day of the tax year for $500,000.Bulky's Federal tax basis for the asset was $300,000.Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $375,000.What adjustment, if any, should be made to Bulky's Federal taxable income in determining the correct taxable income for the typical state?

Question

Quizplus · Accepted Answer

The adjustment that should be made to Bulky's Federal taxable income in determining the correct taxable income for the typical state is the difference between the state regular-tax basis and the Federal tax basis, which is ($75,000). This adjustment needs to be subtracted from the Federal taxable income, reducing it by $75,000. Therefore, the correct taxable income for the typical state is $425,000 ($500,000 - $75,000).

Bulky Company Sold an Asset on the First Day of the Tax