1. Taxpayer bought a house in 2008 by $200,000. During 2008 through 2010, the taxpayer incurred in the following disbursement related to this property: Painting $2,000; repair of fence $1,000; replaced electrical wiring system $10,000; and adding a new room $45,000. During 2010, he sold the house by $300,000. [Review Power Point #9, pages 2 to 10]
a. What is the adjusted basis of the property?

Assuming no exclusions for the sale on principal residence the calculations will be the following:
Original Basis: $ 200,000
+Capital Expenditures: $ 55,000
+Capital Returns -0-

Adjusted Basis $ 255,000 * Routine Repair and maintenance expenses are not capitalized

b. What is the realized gain in the sale of the house?

Cash Received $ 300,000 +FMV of Property & Services Rendered -0- +Liabilities of Seller Assumed by Buyer -0- -Selling Expenses -0- Amount Realized $ 300,000

2. A company purchases a machine in Germany at a cost of $100,000. In order to transport the machine to Puerto Rico, the entity incurred in the following disbursement: insurance $2,000 and delivery cost $10,000. In addition, the company paid $5,000 to install the machine; and $1,000 to Treasury Department of Puerto Rico (Departamento de Hacienda) for sale taxes. [Review Power Point #9, pages 11 to 12]
a. What is the original basis of the machine?
Original Basis is cost and includes acquisition cost such as commissions, legal fees, recording fees, sales taxes, as well as installation and delivery costs.

Original Basis: $ 100,000 10,000 5,000 1,000 $ 116,000

3. Peter does cleaning services of the garden to his friend. In exchange for the service rendered, Peter received a box of 12 bottles of wine with a cost of $100 and a fair market value of $150. [Review Power Point #9, pages 13]
a. What is original basis the box of wine?

When property that is not like-kind is received then any realized gain is recognized to the extent of the boot received, but not to exceed realized gain.
Method 2:
FMV of Property Received $ 150
Less: Deferred Gain 50
Plus: Deferred Loss -0-
Basis of Property Acquired 100