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Several years ago, Sarah purchased a structure for $150,000 that was originally placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts__________.

a. $20,000 credit, $180,000 basis.
b. $20,000 credit, $200,000 basis.
c. $20,000 credit, $350,000 basis.
d. $40,000 credit, $160,000 basis.
e. None of these.

Respuesta :

Answer:

Option (a) is correct.

Explanation:

Given that,

Cost of structure = $150,000

Rehabilitation expenditures in the current year = $200,000

Tax credit = 10% of Rehabilitation expenditures

                 = 10% × $200,000

                 = $20,000

Basis of cost recovery:

= Rehabilitation expenditures in the current year -  Tax credit

= $200,000 - $20,000

= $180,000

Therefore, the $20,000 credit, $180,000 basis.

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