Question

Several years ago, Sarah purchased a structure for $150,000 that was originally placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts:_________
a. $20,000 credit, $180,000 basis.
b. $20,000 credit, $200,000 basis.
c. $20,000 credit, $350,000 basis.
d. $40,000 credit, $160,000 basis.
e. none of these.

Answer 1

Answer:

amount of the tax credit = $20,000

amount of basis for cost recovery = $180,000

Explanation:

given data

purchased structure = $150,000

rehabilitation expenditures = $200,000

to find out

amount of the tax credit and amount of building's basis for cost recovery

solution

first  we get here amount of the tax credit that is express as

amount of the tax credit = 10% of rehabilitation expenditures   .................1

amount of the tax credit = 0.10  × $200,000

amount of the tax credit = $20,000

and

mount of building's basis for cost recovery that is

amount of basis for cost recovery = rehabilitation expenditures - amount of the tax credit   ...................2

amount of basis for cost recovery = $200,000 - $20,000

amount of basis for cost recovery = $180,000