g sed a delivery van for his business through an online auction. His winning bid for the van was $27,750. In addition, Jose incurred the following expenses before using the van: shipping costs of $1,100; paint to match the other fleet vehicles at a cost of $1,230; registration costs of $2,260, which included $2,050 of sales tax and an annual registration fee of $210; wash and detailing for $68; and an engine tune-up for $254.
What is Jose's cost basis for the delivery van?

Jose's cost basis would include only the cost necessary to make the delivery van available for use. This is also know as the basis for capitalization of the expenses. A review of the cost incurred;

Winning bid for the van $27,750. This is a necessary cost and forms a part of the cost basis. The shipping cost of $1,100 is also a necessary cost as the asset must be shipped to be available for use. The painting cost of $1,230 is not a necessary cost as the van would still be available for use even if not painted. The sales tax of $2,050 is key for the van purchase and as such is a part of the cost basis. Wash and detailing cost of $68 is an expense that does not form part of the cost basis as this has no effect on the value and useful life of the van. Engine tune up cost is a servicing cost that does not affect the useful life of the asset. As such, the cost basis

= [tex]= 27750+1100+2050\\

=30900[/tex]

Cost basis is $30,900