Oregon 30-Hour Real Estate Law Practice Test

Malcolm purchased an old convenience store and made renovations, totaling $524,000. What does this amount represent?

1. Net profit from sales

2. Market value of the property

3. Depreciable basis

4. Total investment cost

The correct answer is: Depreciable basis

The amount of $524,000 represents the depreciable basis of the property. When Malcolm made renovations to the convenience store, those costs contribute to the overall value that can be depreciated over time for tax purposes. The depreciable basis is typically determined by taking the purchase price of the property and adding the costs associated with improvements, which in this instance includes the renovations made by Malcolm. The depreciable basis is essential for property owners as it affects their tax liability by allowing them to recover the cost of the asset over its useful life through depreciation deductions. By having a higher depreciable basis, Malcolm can maximize his tax benefits as he will be able to write off more of the property's cost when reporting income. The other options do not accurately describe the significance of the $524,000 in this context. It is not the net profit from sales, as that pertains to income earned rather than costs incurred. It also does not represent the market value of the property, which is a separate concept that reflects what the property could sell for in the current market. Lastly, while it could be considered a part of the total investment cost in a broader sense, the term "depreciable basis" is the precise terminology that applies in the context of taxation and asset