When real property is purchased for business use some

10. When real property is purchased for business use, some settlement costs are to be added
to the property's basis and some are to be deducted in the year of the expense or capitalized.
Which of the following, when paid by the purchaser, cannot be added to basis?
A. Back taxes.
B. Transfer taxes.
C. Current real estate taxes.

D. Document or stamp taxes.
11. What effect does depreciation have on the basis of a business asset?
12. Which of the following is a non-capital asset?
13. Dawn meets the requirements for deducting expenses for the business use of her home.
She uses 20% of her home for her business and had the following income and expenses. What
amount of depreciation will be allowed under the office in home deduction limitation rules?
Gross income from business $6,000
20 % of the Home mortgage and interest expense $3,000
100% of business supplies & business phone $2,000
20% of home maintenance, insurance, & utilities $800
Depreciation (calculated on 20% of cost of the home) $1,600

14. When a group of assets that is a trade or business is purchased for a lump sum, the price
assigned to each asset may be determined by using any of the following rules except:
A. Make the allocation among the assets in proportion to (but not in excess of) their fair
B. The seller and the buyer may make a written agreement to allocate the consideration or
C. The seller and the buyer may make a specific allocation to each asset if it is based on
D. Make the allocation among the assets in the following order: 1) cash, demand deposits,
market value on the purchase date.
the fair market value of any asset. The agreement is binding on both parties unless the IRS
determines that the amounts are not appropriate.
the value of each asset and the seller and the buyer have adverse interests.
etc; 2) certificates of deposit, U. S. Government securities, readily marketable stock or
securities, and foreign currency; 3) Section 197 intangibles (other than goodwill and going
concern value); and 4) any excess is allocated to tangible assets based on fair market value.