P2-U07 · PART 2 · SOURCE CYCLE 2026-2027
Basis of Business Assets
How to complete this unit
This unit uses 19 source-gated recall cards and 19 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 19 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 2 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
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?
The adjusted basis of the property
Q5.The uniform capitalization rules will apply in all of the following situations except?
A business with $30 million or less average annual gross receipts.
Q6.Which of the following items INCREASE the basis of property?
The cost of extending utility service lines to the property
Q7.What type of property would NOT be classified as Section 1231 property?
Business inventory
Q8.What is usually included in the cost basis of business equipment you buy?
Cost generally includes the purchase price plus amounts paid for items such as freight, installation, and testing.
Q9.How do capital improvements and depreciation change adjusted basis?
Improvements increase basis. Depreciation deductions reduce basis.
Q10.How much section 1245 gain is treated as ordinary income on disposition?
The lesser of depreciation/amortization allowed or allowable and the gain realized on the disposition.
Q11.Arvin purchases 50 shares of Shopper's Paradise, Inc. stock for $3,500 on January 1, 2025. He pays a broker's fee of $100. On March 30, 2025, he receives an additional 40 shares of Shopper's Paradise, Inc. stock as a nontaxable stock dividend. On December 31, 2025, the company declares a two-for-one stock split, doubling the number of his shares. Calculate the total basis of Arvin's stock and his per-share basis at the end of the year:
Stock basis: $3,600; per-share basis: $20
Q12.All of the following items decrease the basis of property except:
The cost of defending a title.
Q13.Alexander is having financial difficulties, so he sells his duplex to Yoshiko, a real estate investor, who plans to use it as a rental property. Alexander was liable for $5,000 in delinquent real estate taxes on the property, which Yoshiko agrees to pay. How should Yoshiko treat this transaction on her business tax return?
Yoshiko cannot deduct these taxes as an expense; she must add them to the property's basis.
Q14.Granbury Crime-Scene Clean-Up, LLC is a biohazard cleaning service. The company purchases three large biohazard storage drums at a price of $3,400 each. The total invoice cost was $10,200. The drums were used to clean up a biohazard waste site and all of them were disposed of afterwards in an incinerator the same week, as required by local law. Granbury Crime-Scene Clean-up does not have Applicable Financial Statements. Under the tangible property regulations, how should the purchase of these drums be treated?
Can deduct the entire expense during the current tax year.
Q15.Pinter Manufacturing, Inc. does not have qualifying financial statements. Under the de minimis expensing safe harbor rule, Pinter Manufacturing can deduct items that cost up to ____ per invoice or item.
$2,500
Q16.Funhouse Catering, Inc. purchases a small warehouse and its underlying land for its catering business, but it is in such bad condition that the company decides to demolish it and build a new one. The demolition costs $5,600. How must Funhouse Catering report this cost on its corporate tax return?
The demolition cost is added to the basis of the land.
Q17.Juicy Burgers, Inc. is a popular restaurant. During the year, Juicy Burgers repaired a water leak in their kitchen roof. No structural changes were made. The repair cost $4,000. Juicy Burgers owns the building. How should this cost be treated on the business' tax return?
The full amount (\$4,000) can be deducted as a repair.
Q18.Action Law Group, Inc. provides legal services to Silver-Nuggets Pawn Shop. Silver-Nuggets Pawn then becomes insolvent and has trouble paying its bills. In lieu of payment, Action Law Group accepts a set of gold coins with a fair market value of $5,000 and an electric scooter with a fair market value of $2,000 and an adjusted basis of $1,000. What amount of business income must Action Law Group report for this transaction?
$7,000
Q19.Under the tangible property regulations, what are the three categories for determining what constitutes an "improvement" to a property, rather than a repair?
Betterment, restoration, or adaptation.
Ready to move on?
- ▸ Explain at least 80% of these 19 rules without opening the answer, twice on different days.
- ▸ Score 80% across 19 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 2 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.