Taxes: What is the cost basis and service date?

Suppose you purchase a skid mounted brewery for $120,000 on Feb 15th and have it delivered for additional $5,000 on Feb 18th. Your electricians and plumbers finish installing it, at a total cost of $5,000, on March 1st and the first time you use it is on March 15th.

What is the cost basis and service date?

Question options:

  • $125,000 and February 18th.
  • $130,000 and March 15th.
  • $120,000 and February 15th.
  • $130,000 and March 1st.

Solution

$130,000 and March 1st.

Since you purchase the brewery for $120,000 and it costs $5,000 to deliver it and another $5,000 to install it you add all three costs together to get the cost basis. Remember that the cost basis is everything you need to do to make the asset useful, including having it installed and delivered.

$120,000+$5,000+$5,000 = $130,000.

The service date is the date the brewery is installed, which is March 1st. Although the brewery was not in use until March 15th we use March 1st as the service date because the installation was complete meaning it could have been used that day for service, so the service date is March 1st.

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