Emelio and Charita are married taxpayers with 2 dependent children. Emelio
starts a computer consulting business in 2010. Charita works as a real estate
broker. During 2010, they have the following property transactions:
Emelio purchases an office building on March 15, 2010, to use in his
computer consulting business.
The price of the property is $120,000. He
pays $15,000 in cash and signs a 30-year, 10% mortgage for the remainder.
For property tax purposes, the land is assessed at $10,000
and the building
$30,000. Emelio pays $3,000 for a new roof for the building.
Emelio was employed by Computer Corporation as a consultant starting his
own business. Computer Corporation lets Emelio purchase the computer
equipment in his office for use in his business.
He makes the purchase on
April 3, 2010. The fair market value of the equipment is $20,000, but Emelio
pays $16,000 to Computer Corporation. Computer Corporation's original
basis in the equipment was $36,000 and its adjusted basis at the time of the
transfer to Emelio is $8,000.
Emelio takes the color printer that the children have been using at home to
use in the office in his consulting business. The original price of the printer
was $8,000, but it was worth $4,000 when converted to business use on April
On March 30, 2010, Emelio buys office furniture to use in his business for
In January, Charita purchases a new car to use in her real estate business.
She pays $19,500 for the car and $1,500 to have a sunroof installed in it.
During the year, she drives the car 6,800 miles for business and 3,200 for
Charita uses a room in their home exclusively and regularly as an office,
room is 12 feet by 12 feet. The total area in the home is 2,400 square feet.
Charita purchased office furniture for $800 when she started using the office
in the home in June 2005. She and Emelio paid $140,000 for the property in
2000, of which $20,000 is allocated to the land.
Emelio and Charita own a rental house. Charita acquired the house from her
former husband in 2001 as part of their divorce settlement. Charita and her
former husband had paid $50,000 for the house (which is her basis in the
property) in 1994. Charita estimates that the house had increased in value to
$90,000 when it was converted to rental property in October 2002.
Charita inherits 200 shares of stock in Desmond, Inc., from her uncle, who
paid $700 for it in 1978. At the date of the uncle's death, the stock is worth
$14,000. The executor of the estate elects to use the alternate valuation date,
at which time the stock is worth $13,300. Charita receives the stock 2 months
later when it is worth $14,500.