On June 1 of the current year,Tab converted a machine from personal use to rental property.At the time of the conversion,the machine was worth $90,000.Five years ago Tab purchased the machine for $70,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?
A)$70,000.
B)$90,000.
C)$120,000.
D)$140,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The basis for cost recovery when converting personal property to business use is the lesser of the fair market value at the time of conversion ($90,000) or the original cost ($70,000). Therefore, the basis is $70,000.

On June 1 of the Current Year,Tab Converted a Machine