On November 4, 2016, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2016 and 2017, respectively, Blue took $642 and $5,128 of cost recovery. These amounts were incorrect; Blue applied the wrong percentages (i. e., those for 39-year rather than 27.5-year assets). Blue should have taken $910 and $7,272 cost recovery in 2016 and 2017, respectively. On January 1, 2018, the asset was sold for $180,000. Enter the values for each item below. If required, round all computations to the nearest dollar. a. The adjusted basis of the asset at the end of 2017 is $.b. The cost recovery deduction for 2018 is $.c. The on the sale of the asset in 2018 is $

a. $191,818

b. $303

c. The loss on the ale of the asset in 2018 is $11,515.

Explanation:

a. The adjusted basis of the asset at the end of 2017 is $

Asset cost = $200,000

Greater of allowed and allowable cost recover in 2016 = $910

Greater of allowed and allowable cost recover in 2017 = $7,272

Basis at the end of 2017 = Asset cost - Greater of allowed and allowable cost recover in 2016 - Greater of allowed and allowable cost recover in 2016 = $200,000  - $910 - $7,272 = $191,818

b. The cost recovery deduction for 2018 is $.

Cost recovery for 2018 = $200,000 * (0.5/12) * 3.636% = $303

c. The on the sale of the asset in 2018 is $

Basis on date of sale = Basis at the end of 2017 - Cost recovery for 2018 = $191,515

Profit (Loss) on sale of asset = Sales proceed - Basis on date of sale = $180,000 − $191,515 = ($11,515) .

Therefore, the loss on the ale of the asset in 2018 is $11,515.

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