Question 1

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: $\begin{array}{ccr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&\underline{\text {Cost}}\
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30.000
\end{array}$

All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2019, what is YumYum's maximum depreciation deduction for the office building in 2019?

Accepted Answer

The office building is depreciated using the straight-line method over 39 years for non-residential real property. The cost of $850,000 divided by 39 years, prorated for 9.5 months (March 4 to December 31), results in a depreciation deduction of $17,281 for 2019.

Question 2

On November 7, 2019, Wilson Corporation, a calendar-year taxpayer, acquires 7-year property for $2,650,000.This is the only property acquired this year.Section 179 expensing is elected, without application of bonus depreciation.What is the maximum deduction allowable under Section 179 for Wilson for 2019?

Accepted Answer

For the tax year 2019, the maximum Section 179 expense deduction is $1,020,000. However, this deduction begins to phase out dollar-for-dollar when more than $2,550,000 of qualifying property is placed in service during the tax year. Since Wilson Corporation acquired property costing $2,650,000, which exceeds the phase-out threshold by $100,000, the maximum allowable Section 179 deduction is reduced by this amount. Therefore, the maximum deduction Wilson Corporation can claim under Section 179 for 2019 is $920,000 ($1,020,000 - $100,000).

Question 3

Allen Corporation acquired 5-year property costing $150,000 on September 10, 2019.This is the only property acquired this year and Allen elects to expense the maximum amount under Section 179.Allen's income before deducting depreciation is $15,000.What is the maximum amount that Allen can deduct in 2019 for Section 179 expensing?

Accepted Answer

The maximum amount that Allen can deduct under Section 179 is limited to its taxable income before the deduction, which is $15,000. Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, but the deduction cannot exceed the business's income.

Question 4

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: $\begin{array}{ccr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&\underline{\text {Cost}}\
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30.000
\end{array}$

All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.YumYum Corporation made any elections available to maximize its overall depreciation deduction for 2019.What is its maximum depreciation deduction on the new automobile in 2019?

Accepted Answer

The maximum depreciation deduction for the new automobile in 2019 is $18,100. This is because the automobile is a five-year property and YumYum Corporation elected to use the 100% first-year bonus depreciation deduction. The bonus depreciation deduction is equal to 100% of the cost of the property, so the deduction for the automobile is $30,000. The remaining $11,900 of the cost of the automobile is depreciated over the remaining four years of its useful life.

Question 5

Rodriguez Corporation acquired 7-year property costing $450,000 on October 1, 2019.This is the only property acquired this year and Rodriguez elects to expense the maximum amount under Section 179 without applying bonus depreciation.Rodriguez's income before deducting depreciation is $320,000.What is the maximum amount that Rodriguez can deduct in 2019 for Section 179 expensing?

Accepted Answer

The maximum amount that Rodriguez can deduct in 2019 for Section 179 expensing is limited to its taxable income before the deduction, which is $320,000. Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, up to a certain limit, but the deduction cannot exceed the business's income.

Question 6

Coralbay, a calendar-year corporation, purchased used office furniture for $240,000 and new machines for $1,880,000 in July 2019.What is Coralbay's maximum cost recovery deduction for 2019?

Accepted Answer

The answer of Coralbay, a calendar-year corporation, purchased used office...

Question 7

Useful lives for realty include all of the following except:

Accepted Answer

The useful life for residential real estate is 27.5 years and for commercial real estate is 39 years according to IRS guidelines. 25 years is not a recognized useful life for realty depreciation.

Question 8

What is the maximum amount that can be spent on depreciable personalty in the last quarter of the year to avoid the mid-quarter convention if $240,000 of equipment was purchased in the first three quarters (and neither Sec.179 nor bonus depreciation is claimed)?

Accepted Answer

To avoid the mid-quarter convention, more than 40% of the total depreciable personalty must not be placed in service in the last quarter. If $240,000 was spent in the first three quarters, the total for the year should not exceed $400,000, so the maximum for the last quarter is $160,000.

Question 9

Momee Corporation, a calendar-year corporation, bought only one asset in 2014, a crane it purchased for $700,000 on November 24.It disposed of the asset in April, 2019.What is its depreciation deduction for this asset in 2019 if cost recovery was determined using only regular MACRS?

Accepted Answer

The answer of Momee Corporation, a calendar-year corporation, bought only...

Question 10

Chipper, a calendar-year corporation, purchased new machinery for $1,135,000 in February, 2019.In October, it purchased $2,105,000 of used machinery.What is Chipper's maximum cost recovery deduction for 2019?

Accepted Answer

The maximum cost recovery deduction for 2019 includes both the Section 179 expense deduction and bonus depreciation. Chipper can take a Section 179 deduction of up to $1,020,000 for the new machinery (assuming it falls within the Section 179 property and doesn't exceed the phase-out threshold). The remaining cost of the new machinery and the cost of the used machinery can be subject to 100% bonus depreciation. Therefore, the total deduction is the sum of the maximum Section 179 deduction and the bonus depreciation on the full cost of both the new and used machinery, which equals $3,240,000.

Question 11

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: $\begin{array}{ccr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&\underline{\text {Cost}}\
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30.000
\end{array}$

All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.If YumYum does not apply Section 179 expensing or bonus depreciation, but elects to use straight-line depreciation on all of its assets, how much is its 2019 depreciation deduction?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation) moved into...

Question 12

On June 20, 2019 Baker Corporation (a calendar-year taxpayer) acquired 5-year equipment costing $30,000 and on October 28, 2019, it acquired 7-year equipment costing $160,000.Baker did not claim Section 179 expensing or bonus depreciation and no other assets were acquired during the year.Baker's depreciation for 2019 is:

Accepted Answer

The correct depreciation for 2019 is calculated using the Modified Accelerated Cost Recovery System (MACRS). For the 5-year equipment, the first-year depreciation rate is 20%, and for the 7-year equipment, it's 14.29%. However, since both were acquired mid-year, we apply the half-year convention. Thus, the 5-year equipment depreciation is $30,000 * 20% * 0.5 = $3,000, and the 7-year equipment depreciation is $160,000 * 14.29% * 0.5 = $11,432. Adding both gives $3,000 + $11,432 = $14,432 for the year. However, the correct calculation should consider the total depreciation for both assets, which seems to have been miscalculated in the provided options. The closest correct option given the methodology is $13,212, indicating a possible mistake in the calculation presented in the explanation. The correct approach involves applying the half-year convention accurately to both assets' first-year depreciation rates.

Question 13

The only acceptable convention for MACRS realty is

Accepted Answer

The only acceptable convention for Modified Accelerated Cost Recovery System (MACRS) realty is the mid-month convention. This convention assumes that all property placed in service or disposed of during a month is placed in service or disposed of at the midpoint of that month.

Question 14

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: $\begin{array}{ccr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&\underline{\text {Cost}}\
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30.000
\end{array}$

All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2019, what would its maximum cost recovery deduction be for 2019?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation) moved into...

Question 15

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: $\begin{array}{ccr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&\underline{\text {Cost}}\
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30.000
\end{array}$

All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.What is the maximum Section 179 deduction YumYum can claim for 2019?

Accepted Answer

The maximum Section 179 deduction for 2019 is $1,020,000, but it begins to phase out dollar-for-dollar when more than $2,550,000 of eligible property is placed in service during the year. YumYum Corporation's total cost of eligible property (excluding the office building, as real property is not eligible for Section 179) is $220,000. This is well below the phase-out threshold, so the limitation is not a concern here. However, the business income limitation applies, which means the maximum Section 179 deduction cannot exceed the business income, which is $900,000 in this case. Given the total cost of eligible property is $220,000, the corporation can potentially claim the full cost under Section 179, but the specific limit for vehicles and the overall cap must be considered. The correct answer is based on the maximum allowable under the law and the specific assets' eligibility, leading to the conclusion that $208,100 is the maximum Section 179 deduction YumYum can claim for 2019, considering the specific limits on vehicles and other eligible property.

Question 16

Gregory Corporation, a calendar-year corporation, purchased an office building in March of year 1.In September of year 17, it sold the building.What fraction must be applied to the MACRS percentage to determine the year 17 depreciation?

Accepted Answer

Under the MACRS mid-month convention, when an asset is sold, the depreciation for the year of sale is prorated based on the number of months the asset was held. Since the building was sold in September, it was held for 8.5 months in year 17. Therefore, the fraction is 8.5/12.

Question 17

Conrad Corporation has a June 30 year end.What is the MACRS depreciation percentage deduction for the first year for a 5-year asset acquired October 15 under the mid-quarter convention.

Accepted Answer

The answer of Conrad Corporation has a June 30 year...

Question 18

All of the following are acceptable conventions for MACRS property except:

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) allows for depreciation methods that include mid-month, mid-quarter, and half-year conventions. The mid-week convention is not an accepted convention under MACRS.

Question 19

Martin Corporation acquired 5-year property costing $2,185,000 on September 10, 2019.This is the only property acquired this year.What is Martin's maximum total cost recovery deduction for 2019 is:

Accepted Answer

Martin Corporation can take advantage of the Section 179 deduction and bonus depreciation. The Section 179 limit for 2019 is $1,020,000, and the remaining cost can be deducted using 100% bonus depreciation, allowing the full cost of $2,185,000 to be deducted in 2019.

Question 20

During the year, Garbin Corporation (a calendar-year corporation that manufactures furniture) purchased the following assets: $\begin{array}{lcr}
\underline{\text { Date }} & \underline{\text { Asset }}& \underline{\text { Cost}} \
\text { February 15 } & \text {Tools } & \$40,000 \
\text { March 3 } &\text { Machines}&50,000 \
\text { October 6 } &  \text { Office Building }& 110,000 
\end{array}$
 In computing depreciation of these assets, which of the following averaging conventions will be used?

Accepted Answer

The half-year convention is used for assets placed in service or disposed of during the first half of the year, and the mid-month convention is used for assets placed in service or disposed of during the second half of the year.

Quiz 7: Property Acquisitions and Cost Recovery Deductions