A taxpayer purchased a machine for use in their business for $20,000. They paid $1,000 for shipping and $2,000 for installation. One year later, the machine was repaired at a cost of $500. What is the taxpayer's initial tax basis in the machine?

The basis of an asset includes the purchase price plus all costs necessary to get the asset in place and ready for its intended use. This includes shipping ($1,000) and installation ($2,000). Routine repairs ($500) incurred after the asset is placed in service are deducted as ordinary business expenses, not added to basis. Total Basis = $20,000 + $1,000 + $2,000 = $23,000.