Reference no: EM132029522

Businessman owns a contracting business, Ace Construction ["Ace"], which he started from scratch shortly after graduating from college. He began renovating old buildings in the downtown area of City for residential rental property in 2011. Ace owns a total of five buildings, including the land on which they sit. Four of the buildings are comprised entirely of luxury condominium units that provide cosmopolitan living accommodations for City's young, urban professional people. The fifth building provides housing for low-income families (which qualifies for the low income housing credit over a 10 year period). Ace was able to acquire all the properties for a total of $50,000 each in 2011. There is a $40,000 mortgage on each property. Ace has beautified all the grounds, including installing a swimming pool at each of the buildings in 2015, at a cost of $15,000 each. In 2016, Ace had to fix a leaky roof on one of the buildings, but other than that, the company has not incurred any other costs relating to the properties themselves. In order to renovate the acquired buildings, future newly acquired buildings, and to maintain all the properties, Ace invested in some equipment. In August, 2011, Ace traded a crane he paid $65,000 for a used small bulldozer from another local construction company worth $75,000, and paid the difference in cash. That same month, Ace bought two new heavy-duty trucks for $30,000 each. In October, 2014, Ace added a brand new tractor and three riding lawn mowers to its business equipment at a total cost of $100,000 and $20,000, respectively. By the year 2016, Ace had become so profitable that it was able to make thousands of dollars of charitable contributions each year thereafter. It also purchased a helicopter in 2015 so Businessman can now fly over nearby cities and scout out new investment opportunities. Ace has elected to have its taxable year be a fiscal year that begins each September.

Ace's "adjusted basis" in each of the residential rental properties, the bulldozer, and the tractor is:

Select one:

A. $50,000, $65,000, and $100,000 respectively, and adjusted for depreciation deductions allowed on the bulldozer and tractor

B. $65,000, $75,000, and $100,000 respectively, and adjusted for depreciation deductions allowed on the bulldozer and tractor only

C. $65,000, $75,000, and $100,000 respectively, and adjusted for depreciation deductions allowed on all the properties and the equipment

D. $50,000, $75, 000, and $100,000 respectively, and adjusted for depreciation deductions allowed on the bulldozer and tractor, and for the reduction in mortgage debt on the residential rental property.