Jean’s home had a basis of $260,000 ($60,000 attributable to the land) and a fair market value of $250,000 when she converted half of it to business use by opening a bed and breakfast. Five years after the conversion, Jean sells the home for $375,000 ($75,000 attributable to the land).
a. Calculate Jean’s basis for gain, loss, and cost recovery for the portion of her personal residence that was converted to business use.
b. Calculate the cost recovery deducted by Jean during the five-year period of business use, assuming the bed and breakfast is opened on January 1 of year 1 and the house is sold on December 31 of year 5.
c. What is Jean’s recognized gain or loss on the sale of the business-use portion?
The portion of Earl’s estate distributed to Robert, one of Earl’s beneficiaries, is valued as follows: Although the fair market value of the stock six months after Earl’s death turned out to be $60,000, the executor of the estate distributed it to Robert one month after Earl’s death when it was worth $85,000.
Determine Robert’s basis for the assets if:
a. The primary valuation date applies.
b. The executor elects the alternate valuation date.
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