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P2-U07 · PART 2 · SOURCE CYCLE 2026-2027
Basis of Business Assets
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here.
Q1.Alder pays a local assessment for road paving that increases the value of business property. What is the basis effect?
Increase the property basis
Q2.What depreciation basis applies when personal-use property is converted to rental use?
The lesser of adjusted basis or fair market value on the conversion date
Q3.How are repair or maintenance costs generally treated when they do not improve the business property?
They are not depreciated
Q4.If a business incurs a casualty loss on business property, what is the maximum amount that can be deducted? A. The adjusted basis of the property B. The original purchase price of the property C. The replacement cost of the property D. The fair market value of the property
The adjusted basis of the property
Q5.The uniform capitalization rules will apply in all of the following situations except? A. The production of tangible personal property for sale to customers. B. A business with $30 million or less average annual gross receipts. C. The construction of real property for sale to customers. D. The acquisition of property for resale to customers.
A business with $30 million or less average annual gross receipts.
Q6.Which of the following items INCREASE the basis of property? A. Depreciation B. The cost of extending utility service lines to the property C. Nontaxable corporate distributions D. Section 179 deduction
The cost of extending utility service lines to the property
Q7.What type of property would NOT be classified as Section 1231 property? A. Depreciable business property held for more than one year B. A residential rental C. Business inventory D. A commercial office building rented to business tenants
Business inventory