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Brenda's basis for depreciation. A Section 197 intangible.

Brenda purchased a business for $120,000 and received a building FMV $80,000 land, FMV $10,000, and furniture and fixtures, FMV $130,000. She spent $10,000 on legal fees to make the purchase. What is the basis of these item for depreciation?

A. $82,500 building, $12,500 land, $35,000 furniture and fixtures
B. $88,750 building, $11,250 land, $30,000 furniture and fixtures
C. $80,000 building, $10,000 land, $30,000 furniture and fixtures
D. $86,667 building, $10,833 land, $32,500 furniture and fixtures

Which of the following is not a section 197 intangible?

A. A noncompete covenant
B. A government issued license
C. Workforce place
D. A partnership interest

Solution Preview

The total purchase price of $120,000 is increased by the $10,000 paid for legal fees. The fees are part of the total cost of all the property. The legal fees are not an expense of doing business and must be added to the value of the assets purchased. The method of doing so is to add the legal fees as a pro-rata amount of each type of asset acquired.

For example, ...

Solution Summary

The 236 word cited solution carefully explains the problems together with calculations.

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