Calculate Abby basis for gain

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Problem - Abby's home had a basis of $360,000 ($160,000 attributable to the land) and a fair market value of $340,000 ($155,000 attributable to the land) when she converted 70% of it to business use by opening a bed-and-breakfast. Four years after the conversion, Abby sells the home for $500,000 ($165,000 attributable to the land).

Required -

a. Calculate Abby'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 Abby during the four-year period of business use, assuming that the bed-and-breakfast is opened on January 1 of year 1 and the house is sold on December 31 of year 4.

c. What is Abby's recognized gain or loss on the sale of the business use portion?

Reference no: EM132659906

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