Marjorie starts a new consulting business out of her home. She converts her personal computer, which cost $3,400, to business use when it is worth $1,200. Which of the following is correct?
I.The initial basis for determining a gain on the sale of the computer is $1,200.
II.The basis for depreciation purposes is $1,200.

Question

Marjorie starts a new consulting business out of her home. She converts her personal computer, which cost $3,400, to business use when it is worth $1,200. Which of the following is correct?
I.The initial basis for determining a gain on the sale of the computer is $1,200.
II.The basis for depreciation purposes is $1,200.
​

Quizplus · Accepted Answer

When property is converted from personal use to business use, the initial basis for determining a gain or loss is the lower of its adjusted basis (cost minus depreciation) or its fair market value at the time of conversion. Therefore, the initial basis for determining a gain on the sale of the computer is $1,200. Further, the basis for depreciation purposes is also $1,200 since it is the lower of the original cost and the fair market value at the time of conversion.

Marjorie Starts a New Consulting Business Out of Her Home