Question - Abby's home had a basis of $360,000 ($160,000 attributable to the land) and a fair market value of $340,000 ($155,000 attributed to the land) when she converted 70% of it to business use by opening a bed and breakfast. Four years after the conversion, Abby sells the home for $500,000 (165,000 attributed to the land).
a. Calculate Abby's basis for gain, loss, and cost recovery for the portion of her personal residence that was converted to business use.
b. Calculate the cost recovery deducted by Abby during the four-year period of business use, assuming that the bed-and-breakfast is opened on January 1 of year one and the house is sold on December 31 of year four.
c. What is Abby's recognize gain or loss on the sale of the business use portion?