Basis Of Cost Basis

7. Land Purchases do NOT affect the Partner's Capital Account because it does NOT affect the Partner's Equity. The Partner's Tax Basis increases by the Partner's share of Liability. Reverse for a decrease of Liability. The higher the Partner's Tax Basis means the Partner can take more Losses if necessary.

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

ASC 320-10-35-34: “The fair value of the investment would then become the new amortized cost basis of the investment and shall not be adjusted for subsequent recoveries in fair value.”

Depreciation is the loss in value of an asset / building over time due to wear and tear, physical deterioration and age. Depreciation is treated as an expense and is a line item on your income statement but must be applied only to the building and not the land (since land does not wear out over time). You will be able to depreciate the building over a period of 39 years using the Modified Accelerated Cost Recovery System (MACRS). IRS Publication 946 contains the rules and guidelines governing depreciation of non-residential or commercial property.

835-20-15-8 Land that is not undergoing activities necessary to get it ready for its intended use is not a qualifying asset. If activities are undertaken for the purpose of developing land for a particular use, the expenditures to acquire the land qualify for interest capitalization while those activities are in progress. The interest cost capitalized on those expenditures is a cost of acquiring the asset that results from those activities. If the resulting asset is a structure, such as a plant or a shopping center, interest capitalized on the land expenditures is part of the acquisition cost of the structure. If the resulting asset is developed land, such as land that is to be sold as developed lots, interest capitalized on the land expenditures is part of the acquisition cost of the developed land.

(A) if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor,

Table 7 in the detailed analysis above shows the summary of the Discounted Cash Flow analysis performed for each of the four potential properties considered for investment. From the chart below, we observe that of the four properties, TFB has the maximum increase in reversion value at the end of the holding period, i.e. 10years. On a primarily income generation potential basis, Alison Green, with a Net Present value of the future rents at $734.29 looks attractive among the four options. Looking at the Investment ranks of the four properties with Simple returns and Discounted returns variables, Alison

The accrual basis of accounting uses the adjusting process to recognize revenues when earned and expenses when incurred. The cash basis of accounting recognizes revenues when cash is received and records expenses when cash is paid. An example of accrual basis of accounting is if a company is insuring a building. The insurance company bills the company $600 every six months. If each bill is for six months of coverage, then under the accrual method, the company would not record a $600 expense in January and a $600 expense in July. It would instead record a $100 expense each month for the whole year.

4. In 2013, Allen Anders sold an asset which cost $70,000. Allen incorrectly claimed $40,000 depreciation over a five-year period. He should have claimed $50,000 depreciation. What was the adjusted basis when sold?

The next property presented to John and Judy was Ivy Terrace, an 80-unit apartment under construction in Arlington, Virginia. Even though this property has the lowest Net Present Value ($619) and lowest monthly mortgage ($5,500), there exist the greatest increase in Cap Rate from purchase to sale price (9.12% to 9.51%). Based on calculations, 72% of total benefits will be derived from cash flow while 41% of total benefits will come via future value. This property has the second highest After Tax Cash Flow (ATCF) but has the lowest remaining loan balance at sale ($4583.03), net cash from sale ($4868.34), net book value ($5545.45), and capital gains. Ivy Terrace has the highest depreciation and has the lowest percent of total benefit from future value and lowest amortization and reserve among the four properties. Finally, the developer of Ivy Terrace guarantees 93% occupancy.

Question 2. 2. (TCO A) Which of the following is a contributing factor to the inefficiency of real estate markets? (Points : 5)

These costs involve the purchase of land, building or remodeling, hiring, licensing, amenities, and many other things.

Property, Plant & Equipment (PPE) (AASB 116): “Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item including borrowing costs that are related to the

Therefore, if a taxpayer holds an investment for a significant period of time, the amount of the gain realized on the sale of the investment may exceed the investment’s cost basis in terms of the actual dollars received, although a large portion of the gain being realized may be due to inflation as opposed to a true increase in the value of the investment (Jones & Sommerfeld, 1995). Indexing the tax basis of all assets to reflect changes in the value of a dollar has been examined as a solution to the problem. Indexing involves increasing the cost basis of a capital asset to account for inflation. This idea hasn’t gained much traction due to the complexity this process would add to the tax code (Jones & Sommerfeld, 1995).

Rental yield: In due course, rental profit is likely to be a grander contributor to profits than capital growth, along with being significantly more dependable. In times when rental yields are great in comparison to government bond yields, it could be wise time to invest in commercial property.