Steve purchased his home for $500,000.As a sole proprietor,he operates a certified public accounting practice in his home.For this business,he uses one room exclusively and regularly as a home office.In Year 1,$3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2,Steve sustained losses in his business;therefore,no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense,his depreciation expense would have been $3,175.What is the adjusted basis in the home?

Question

Quizplus · Accepted Answer

The adjusted basis must be reduced by the greater of the depreciation allowed ($3,042)or allowable ($6,217).Thus,the adjusted basis is $493,783 ($500,000 - $6,217).

Steve Purchased His Home for $500,000