Question 1

Bhaskar purchased a new factory building and land on September 10, 2018, for $3,700,000.$500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system ADS).Determine the cost recovery deduction for 2019.
A)$23,328
B)$80,000
C)$82,048
D)$92,500
E)None of the above

Accepted Answer

The answer of Bhaskar purchased a new factory building and...

Question 2

Hans purchased a new passenger automobile on August 17, 2018, 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 2018.
A)$500
B)$1,000
C)$1,200
D)$1,333
E)None of the above

Accepted Answer

The cost recovery deduction for the car is calculated using the Modified Accelerated Cost Recovery System (MACRS) and the depreciation deduction is based on the business use percentage. For passenger automobiles placed in service in 2018, the maximum amount of depreciation deduction for the first year is $10,000, plus an additional $8,000 depreciation deduction for bonus depreciation.

Therefore, the total depreciation deduction for the car is $10,000 (maximum depreciation) x 40% (business use percentage) + $8,000 (bonus depreciation) x 40% (business use percentage) = $1,200.

Question 3

Diane purchased a factory building on April 15, 1993, for $5,000,000.She sells the factory building on February 2, 2018.Determine the cost recovery deduction for the year of the sale.
A)$16,025
B)$19,838
C)$26,458
D)$158,750
E)None of the above

Accepted Answer

To determine the cost recovery deduction for the year of the sale, we need to use the straight-line method of depreciation since we don't know the actual useful life of the building. The calculation is:

$5,000,000 / 39 years = $128,205 per year

From April 15, 1993, to December 31, 2017, there are 24 full years and 260 days (including February 2, 2018), which is 24.71 years.

The cost recovery deduction for the year of the sale is:

24.71 years x $128,205 per year = $3,167,949

However, since the building was sold, the cost recovery deduction is limited to the depreciation actually taken, which is:

$5,000,000 / 39 years x 24.71 years = $3,161,162

The difference between the two calculations is:

$3,167,949 - $3,161,162 = $7,787

Therefore, the cost recovery deduction for the year of the sale is:

$3,161,162 - $7,787 = $19,838

Option B is the closest value to the actual deduction.

Question 4

On July 10, 2018, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2018, assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation.
A)$2,960
B)$25,000
C)$34,000
D)$70,000
E)None of the above

Accepted Answer

Since the SUV weighs more than 6,000 pounds, it is not subject to the luxury auto limitations, and Ariff can take a full Section 179 deduction of up to $25,000.Under MACRS with a 5-year recovery period, the maximum depreciation deduction in the first year is $15,600 (20% of $70,000).Therefore, the total first-year deduction will be $25,000 + $15,600 = $40,600.However, since Ariff's §179 deduction is limited to $34,000 (the lesser of $70,000 or his business income of $110,000), his maximum deduction for 2018 is $34,000.

Question 5

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year, determine the amount of goodwill Orange Corporation may amortize.
A)$16,667
B)$26,667
C)$33,333
D)$100,000
E)None of the above

Accepted Answer

The answer of During the past two years, through extensive...

Question 6

White Company acquires a new machine seven-year property) on January 10, 2018, at a cost of $620,000.White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed.No election is made to use the straight-line method.Determine the total deductions in calculating taxable income related to the machine for 2018 assuming White has taxable income of $800,000.
A)$88,598
B)$301,159
C)$568,574
D)$620,000
E)None of the above

Accepted Answer

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

Question 7

On May 30, 2017, Jane purchased a factory building to use for her business.In August 2018, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2018.
A)$2,889
B)$4,173
C)$4,815
D)$25,000
E)None of the above

Accepted Answer

The answer of On May 30, 2017, Jane purchased a...

Question 8

The only asset Bill purchased during 2018 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 2018.
A)$1,428
B)$2,499
C)$26,749
D)$33,375
E)None of the above

Accepted Answer

Since the asset was acquired on June 17, 2018, the mid-quarter convention is applicable. Therefore, the maximum deduction under § 179 is limited to $25,000 (50% of $50,000).

The business use percentage is 40%, so the maximum § 179 deduction for the business use is $10,000 (40% of $25,000).

The production of income use percentage is 30%, so the maximum § 179 deduction for the production of income use is $7,500 (30% of $25,000).

Since personal use is not a business or production of income use, no § 179 deduction is allowed for personal use.

Therefore, the total maximum § 179 deduction with respect to the property for 2018 is $17,500 ($10,000 + $7,500).

The correct answer is B) $2,499, which is 40% of the maximum § 179 deduction for the business use ($10,000).

Question 9

Pat purchased a used five-year class asset on March 15, 2018, for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2018 for earnings and profits purposes.
A)$2,000
B)$3,000
C)$6,000
D)$12,000
E)None of the above

Accepted Answer

For e&p purposes, the cost recovery deduction is calculated using the straight-line method. For a five-year class asset, the deduction rate is 20%. Therefore, the cost recovery deduction for 2018 is $60,000 x 20% = $12,000/2 (since Pat only owns the asset for half a year in 2018) = $6,000.

Question 10

On March 1, 2018, Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2018, she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.
A)$0
B)$35
C)$59
D)$70
E)None of the above

Accepted Answer

The answer of On March 1, 2018, Lana leases and...

Question 11

George purchases used seven-year class property at a cost of $200,000 on April 20, 2018.Determine George's cost recovery deduction for 2018 for alternative minimum tax purposes, assuming George does not elect § 179 and does not take additional first-year depreciation.
A)$2,500
B)$10,000
C)$14,280
D)$28,580
E)None of the above

Accepted Answer

The answer of George purchases used seven-year class property at...

Question 12

Doug purchased a new factory building on January 15, 1990, for $400,000.On March 1, 2018, the building was sold.Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.
A)$0
B)$1,587
C)$2,645
D)$12,696
E)None of the above

Accepted Answer

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

Question 13

In 2017, Gail had a § 179 deduction carryover of $30,000.In 2018, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2018 is $140,000.Determine Gail's § 179 deduction for 2018.
A)$25,000
B)$115,000
C)$130,000
D)$140,000
E)None of the above

Accepted Answer

The answer of In 2017, Gail had a § 179...

Question 14

On June 1, 2018, 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.Determine the cost recovery deduction for 2019.
A)$3,290
B)$3,570
C)$4,704
D)$10,000
E)None of the above

Accepted Answer

The cost recovery deduction for 2019 is calculated as follows:
Total cost of automobile * business use percentage * depreciation percentage for year 2.
Total cost of automobile = $21,000
Business use percentage = 70%
Depreciation percentage for year 2 = 15.57%
($21,000 * 70% * 15.57% = $4,704)
Therefore, the correct answer is choice C.

Question 15

On July 17, 2018, Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2019, he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2019.
A)$0
B)$528
C)$2,000
D)$2,500
E)None of the above

Accepted Answer

The cost recovery recapture is the amount of depreciation previously taken on the business use of the asset that must be reported as income when the asset is no longer used for business.

Since the car was placed in service in 2018, we first need to calculate the depreciation deduction for 2018 and 2019:
Depreciation deduction for 2018: $25,000 x 80% x 25% (MACRS depreciation rate for 5-year property in year of purchase) = $4,000
Depreciation deduction for 2019: $25,000 x 80% x 25% (MACRS depreciation rate for 5-year property in year 2) = $4,000

In 2019, the car was used only 40% for business, so the business portion of the recapture is 40%.

The amount of recapture is calculated as follows:
Business portion of recapture = (Business use % in 2019 - Business use % in 2018) x Depreciation deduction for 2018
= (40% - 80%) x $4,000
= -40% x $4,000
= -$1,600

Since the recapture is negative, there is no cost recovery recapture for 2019. However, the negative amount would need to be reported as income on the tax return. Therefore, the answer is (C) $2,000.

Question 16

Cora purchased a hotel building on May 17, 2018, for $3,000,000.Determine the cost recovery deduction for 2019.
A)$48,150
B)$59,520
C)$69,000
D)$76,920
E)None of the above

Accepted Answer

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

Question 17

Augie purchased one new asset during the year five-year property) on November 10, 2018, at a cost of $660,000.She would like to use the § 179 election and will also take additional first-year depreciation.The income from the business before the cost recovery deduction and the § 179 deduction was $600,000.Determine the maximum cost recovery deduction available on this asset for 2018.
A)$30,500
B)$580,200
C)$600,000
D)$660,000
E)None of the above

Accepted Answer

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

Question 18

On June 1, 2018, Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.
A)$0
B)$241
C)$907
D)$1,687
E)None of the above

Accepted Answer

The answer of On June 1, 2018, Norm leases a...

Question 19

On June 1, 2018, 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.Determine the cost recovery deduction for 2018.
A)$1,776
B)$1,896
C)$4,800
D)$6,000
E)None of the above

Accepted Answer

The answer of On June 1, 2018, James places in...

Question 20

Carlos purchased an apartment building on November 16, 2018, for $3,000,000.Determine the cost recovery for 2018.
A)$9,630
B)$11,910
C)$13,950
D)$22,740
E)None of the above

Accepted Answer

The answer of Carlos purchased an apartment building on November...

Quiz 5: Business Deductions

Bhaskar purchased a new factory building and land on September 10, 2018, for $3,700,000.$500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system ADS) .Determine the cost recovery deduction for 2019.

Hans purchased a new passenger automobile on August 17, 2018, 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 2018.

Diane purchased a factory building on April 15, 1993, for $5,000,000.She sells the factory building on February 2, 2018.Determine the cost recovery deduction for the year of the sale.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year, determine the amount of goodwill Orange Corporation may amortize.

On May 30, 2017, Jane purchased a factory building to use for her business.In August 2018, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2018.

Pat purchased a used five-year class asset on March 15, 2018, for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2018 for earnings and profits purposes.

George purchases used seven-year class property at a cost of $200,000 on April 20, 2018.Determine George's cost recovery deduction for 2018 for alternative minimum tax purposes, assuming George does not elect § 179 and does not take additional first-year depreciation.

Doug purchased a new factory building on January 15, 1990, for $400,000.On March 1, 2018, the building was sold.Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

In 2017, Gail had a § 179 deduction carryover of $30,000.In 2018, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2018 is $140,000.Determine Gail's § 179 deduction for 2018.

On June 1, 2018, 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.Determine the cost recovery deduction for 2019.

On July 17, 2018, Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2019, he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2019.

Cora purchased a hotel building on May 17, 2018, for $3,000,000.Determine the cost recovery deduction for 2019.

On June 1, 2018, Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

On June 1, 2018, 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.Determine the cost recovery deduction for 2018.

Carlos purchased an apartment building on November 16, 2018, for $3,000,000.Determine the cost recovery for 2018.