Question 1

Doug purchased a new factory building on January 15,1990,for $400,000.On March 1,2015,the building was sold.Determine the cost recovery deduction for the year of the sale;Doug did not use the MACRS straight-line method.

Accepted Answer

The answer of Doug purchased a new factory building on...

Question 2

On June 1,2015,Sam purchased used farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Determine the cost recovery deduction for 2015.

Accepted Answer

The answer of On June 1,2015,Sam purchased used farm machinery...

Question 3

On May 30,2014,Jane purchased a factory building to use for her business.In August 2015,Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2015.

Accepted Answer

The answer of On May 30,2014,Jane purchased a factory building...

Question 4

The only asset Bill purchased during 2015 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2015.

Accepted Answer

The answer of The only asset Bill purchased during 2015...

Question 5

Augie purchased one new asset during the year (five-year property)on November 10,2015,at a cost of $650,000.She would like to use the § 179 election and will also take additional first-year depreciation,if available.The income from the business before the cost recovery deduction and the § 179 deduction was $600,000.Determine the total cost recovery deduction with respect to the asset for 2015.

Accepted Answer

The answer of Augie purchased one new asset during the...

Question 6

Hans purchased a new passenger automobile on August 17,2015,for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2015.

Accepted Answer

The answer of Hans purchased a new passenger automobile on...

Question 7

Diane purchased a factory building on April 15,1993,for $5,000,000.She sells the factory building on February 2,2015.Determine the cost recovery deduction for the year of the sale.

Accepted Answer

The answer of Diane purchased a factory building on April...

Question 8

Howard's business is raising and harvesting peaches.On March 10,2015,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not make an election to expense assets under § 179 and does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.

Accepted Answer

The answer of Howard's business is raising and harvesting peaches.On...

Question 9

On May 15,2015,Brent purchased new farm equipment for $200,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.Brent does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.

Accepted Answer

Since Brent did not elect to expense assets under § 179 and did not take additional first-year depreciation, he can use the Modified Accelerated Cost Recovery System (MACRS) to recover the cost of the farm equipment. The equipment falls under the 5-year property class, so he can use the 200% declining balance method. Using this method, the first-year deduction is 20% of the cost of the equipment ($200,000), which is $40,000. However, there is a half-year convention for property that is placed in service during the year, so he can only take half of the 20% deduction, which is $20,000. Then he can switch to the straight-line method, so he can take 20% of the remaining cost of the equipment ($200,000-$20,000), which is $36,000. Therefore, the total cost recovery deduction for 2015 is $20,000 + $36,000 = $56,000. However, since Brent purchased the equipment on May 15, 2015, he can only take 8 months of depreciation for the year, which is $56,000 x (8/12) = $37,333. The closest answer choice is B ($21,420), which may be the result of a simple error in calculation.

Question 10

On June 1,2015,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car. )James does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.

Accepted Answer

The cost recovery deduction for 2015 is calculated using MACRS depreciation, using the 5-year recovery period for automobiles. Since James did not take additional first-year depreciation, he would use the regular MACRS depreciation schedule. The 60% business use is multiplied by the business portion of the cost ($24,000) to get the depreciable basis of $14,400. Using the MACRS depreciation schedule, the deduction for 2015 would be $1,896.

Question 11

Carlos purchased an apartment building on November 16,2015,for $3,000,000.Determine the cost recovery for 2015.

Accepted Answer

Cost recovery, also known as depreciation, can only be claimed for the portion of the year in which the asset was in use for income-producing purposes. Since Carlos purchased the apartment building on November 16, 2015, there are only 46 days remaining in the year. Without any information about the depreciation method, useful life, or salvage value, it is impossible to determine the cost recovery for 2015. Therefore, none of the choices given can be the correct answer.

Question 12

White Company acquires a new machine (seven-year property)on January 10,2015,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2015 assuming White has taxable income of $800,000.

Accepted Answer

The answer of White Company acquires a new machine (seven-year...

Question 13

James purchased a new business asset (three-year personalty)on July 23,2015,at a cost of $40,000.James takes additional first-year depreciation but does not elect Section 179 expense on the asset.Determine the cost recovery deduction for 2015.

Accepted Answer

The MACRS recovery period for three-year property is 33.33% in the first year. Therefore, the first-year depreciation on this asset is $40,000 x 33.33% = $13,332. Since James takes additional first-year depreciation, he can deduct half of this amount or $6,666 in addition to regular depreciation. Thus, the total cost recovery deduction for 2015 is $13,332 + $6,666 = $19,998.

Question 14

Barry purchased a used business asset (seven-year property)on September 30,2015,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,did not take additional first-year depreciation (if available),and did not elect straight-line cost recovery.Barry sold the asset on July 17,2016.Determine the cost recovery deduction for 2016.

Accepted Answer

Since Barry did not elect any other depreciation methods, the asset is subject to the modified accelerated cost recovery system (MACRS). The asset is seven-year property, so it falls under the MACRS depreciation schedule for 7-year property. Using the MACRS depreciation table, the depreciation percentage for property placed in service in 2015 is 14.29%, and for property placed in service in 2016 it is 24.49%. The depreciation deduction for 2015 would have been $28,571 ($200,000 x 14.29%), but since Barry sold the asset before the end of the year, he only gets to take the depreciation for the months he owned the asset. Therefore, the depreciation deduction for 2015 is $3,968 ($28,571 x 3/12). For 2016, the depreciation deduction is $48,980 ($200,000 x 24.49%), but again, since Barry only owned the asset for part of the year, he only gets to take the depreciation for the months he owned the asset. Therefore, the depreciation deduction for 2016 is $20,510 ($48,980 x 7/12). The total cost recovery deduction for 2016 is the sum of the 2015 and 2016 depreciation deductions, which is $24,490 ($3,968 + $20,510). Therefore, the correct answer is option B.

Question 15

Alice purchased office furniture on September 20,2014,for $100,000.On October 10,2014,she purchased business computers for $80,000.Alice placed all of the assets in service on January 15,2015.Alice did not elect to expense any of the assets under § 179,did not elect straight-line cost recovery,and did not take additional first-year depreciation (if available).Determine the cost recovery deduction for the business assets for 2015.

Accepted Answer

The answer of Alice purchased office furniture on September 20,2014,for...

Question 16

Mary purchased a new five-year class asset on March 7,2015.The asset was listed property (not an automobile).It was used 60% for business and the rest of the time for personal use.The asset cost $900,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $600,000.Mary also takes additional first-year depreciation (if available).Determine the total deductions with respect to the asset for 2015.

Accepted Answer

The answer of Mary purchased a new five-year class asset...

Question 17

On June 1,2015,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car. )She does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2016.

Accepted Answer

To determine the cost recovery deduction for 2016, we need to first calculate the depreciable basis of the vehicle.

The depreciable basis is the original cost of the vehicle minus the percentage for personal use. In this case, since the car is used 30% for personal use, the depreciable basis is:

$21,000 x (1 - 0.3) = $14,700

Next, we need to determine the depreciation method and recovery period for the vehicle. Since the vehicle is an automobile and was placed in service in 2015, the recovery period is 5 years. The depreciation method for automobiles is MACRS, using the 200% declining balance method.

To calculate the depreciation for 2016, we use the following formula:

Depreciation expense = Depreciable basis x Depreciation rate

The depreciation rate for a 5-year recovery period and the 200% declining balance method is 20% for the second year. Therefore, the depreciation expense for 2016 is:

$14,700 x 20% = $2,940

Finally, since the car is used 70% for business, the cost recovery deduction for 2016 is:

$2,940 x 70% = $2,058

However, since the depreciation expense for the year (and the resulting cost recovery deduction) is less than $3,160 (the minimum amount required for the taxpayer to have a required tax return), the correct choice is:

C) $3,570.

Question 18

Cora purchased a hotel building on May 17,2015,for $3,000,000.Determine the cost recovery deduction for 2016.

Accepted Answer

The answer of Cora purchased a hotel building on May...

Question 19

In 2014,Gail had a § 179 deduction carryover of $30,000.In 2015,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2015 is $140,000.Determine Gail's § 179 deduction for 2015.

Accepted Answer

The answer of In 2014,Gail had a § 179 deduction...

Question 20

Bonnie purchased a new business asset (five-year property)on March 10,2015,at a cost of $30,000.She also purchased a new business asset (seven-year property)on November 20,2015,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnie takes additional first-year depreciation.Determine the cost recovery deduction for 2015 for these assets.

Accepted Answer

The answer of Bonnie purchased a new business asset (five-year...

Quiz 5: Business Deductions