Calculating Cost Basis of Warehouse Purchased by Podrick LLC

Understanding the Cost Basis of the Warehouse

Podrick LLC purchased a warehouse and land during the current year for a total of $425,000. The appraised value of the warehouse was $400,000, and the appraised value of the land was $100,000. Now, let's determine the cost basis of the warehouse.

Calculating the Cost Basis

The cost basis of an asset is typically the purchase price of the asset. In this case, Podrick LLC purchased both a warehouse and land for a total of $425,000, but the assets have different appraised values. The value of the warehouse is $400,000 and the value of the land is $100,000.

To find out the cost basis of the warehouse, we can use proportional distribution using their appraised values. The total appraised value is $500,000 ($400,000 for the warehouse plus $100,000 for the land). The proportion of the warehouse value to the total appraised value is $400,000 / $500,000 = 0.8 or 80%.

Therefore, the cost basis of the warehouse would be 80% of the total cost, which equals to $425,000 x 0.8 = $340,000. Therefore, the correct answer is $340,000.