Joy opened a shop to sell concrete yard ornaments in 2017. She converted a building in front of her residence into a store. The fair market value of the building when she opened the store was $50,000. The land, her house, and the store building cost $100,000 when she purchased them in 2011. The appraised values in 2011 were as follows: $10,000 for the store building, $15,000 for the land, and $25,000 for the house.
In 2018, Joy began traveling to craft shows in her van to sell her ornaments. The van cost $12,000 in 2014 and had a fair market value of $5,000 in 2018 when she began using it in the business. She paid $1,000 in 2018 to modify the van so that it could carry the heavy loads. Her business mileage has remained at 60% of her total mileage since 2018, and she has always used the standard mileage deduction. In 2021, she travels 12,000 miles to craft shows. 

In January 2021, the manufacturer from whom she purchases her concrete ornaments tells Joy he wants to retire and asks if she is interested in buying his business. Joy believes she can increase her profits by making her own products, and agrees to purchase the business. The negotiated purchase price of the assets is as follows:

When Joy starts to manufacture the concrete ornaments during the winter of 2021, she finds that she needs a structure in which to work to protect her and the concrete mixture from the cold. She purchases the materials for a barn for $6,000 and hires laborers to build it for $4,000

a. Determine Joy's maximum 2021 cost-recovery deduction on her business assets. Assume that she has always taken the maximum allowable costrecovery deduction on her business assets but has never had enough business income to elect to expense assets under Section 179. In 2021, Joy estimates that her net business income before any cost-recovery deductions will be at least $30,000, and she would like to take the maximum allowable deduction in 2021.

b. Write a letter to Joy explaining the results of maximizing her 2021 allowable costrecovery deductions.

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Asset Inventory Equipment Adjusted Basis $5,000 12,000 Fair Market Value $7.500 18,000