Question 1

Diane purchased a factory building on April 15, 1993, for $5,000,000.She sells the factory building on February 2, 2017.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

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

Question 2

Augie purchased one new asset during the year (five-year property) on November 10, 2017, 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 total cost recovery deduction with respect to the asset for 2017.
A)$30,500
B)$320,250
C)$510,000
D)$588,750
E)None of the above

Accepted Answer

First, we need to determine the maximum § 179 deduction. The asset qualifies for the full $510,000 § 179 deduction because the asset was placed in service in 2017 and the cost of the asset is less than the phase-out threshold of $2,030,000.

Next, we need to calculate the additional first-year depreciation. Since the asset was purchased and placed in service after September 27, 2017, we can take 40% of the remaining cost basis (after the § 179 deduction) as bonus depreciation. So, the remaining cost basis after the § 179 deduction is $150,000 ($660,000 - $510,000), and the bonus depreciation is $60,000 (40% x $150,000).

Finally, we can calculate the regular MACRS depreciation. Since the asset is five-year property, the depreciation rate is 20%. Half-year convention applies in the year of acquisition. So, the depreciation deduction for 2017 is $21,450 [$660,000 x 20% x (51/365)].

Therefore, the total cost recovery deduction is $588,750 ($510,000 + $60,000 + $21,450).

Question 3

Carlos purchased an apartment building on November 16, 2017, for $3,000,000.Determine the cost recovery for 2017.
A)$9,630
B)$11,910
C)$13,950
D)$22,740
E)None of the above

Accepted Answer

The cost recovery for real estate, particularly for an apartment building, is calculated using the Modified Accelerated Cost Recovery System (MACRS). Residential rental property is depreciated over a 27.5-year life. The IRS provides tables for determining the depreciation percentage for each year. For property placed in service in any month other than January, the depreciation for the first year is prorated based on the month it was placed in service. Since the building was purchased in November, the depreciation for 2017 would be for 1.5 months (November and half of December). However, without the specific percentage from the MACRS table for a partial year or the method of calculation specified (straight-line or MACRS), and given the options provided, none of the choices accurately reflect a common specific amount for cost recovery for a property purchased in November under the MACRS system for the first year. Therefore, the correct answer is that none of the provided options accurately represent the cost recovery for 2017 without additional information.

Question 4

The only asset Bill purchased during 2017 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 2017.
A)$1,428
B)$2,499
C)$26,749
D)$33,375
E)None of the above

Accepted Answer

The answer of The only asset Bill purchased during 2017...

Question 5

Hazel purchased a new business asset (five-year asset) on September 30, 2017, at a cost of $100,000.On October 4, 2017, Hazel placed the asset in service.This was the only asset Hazel placed in service in 2017.Hazel did not elect § 179 or additional first-year depreciation.On August 20, 2018, Hazel sold the asset.Determine the cost recovery for 2018 for the asset.
A)$14,250
B)$19,000
C)$23,750
D)$38,000
E)None of the above

Accepted Answer

Since the asset was placed in service on October 4, 2017, it is considered to have been in service for 3 months in 2017 (October, November, December). The depreciation for 2017 using the half-year convention is $5,000 ($100,000/2 X 3/12).
For 2018, since Hazel did not elect § 179 or additional first-year depreciation, the asset is depreciated using the MACRS five-year class life and the half-year convention again. The 2018 annual depreciation amount is $20,000 ($100,000/5). Since the asset was sold on August 20, 2018, it was in service for 8 months in 2018 (January through August). The depreciation for 2018 is $13,333 ($20,000 X 8/12).
The total cost recovery for 2018 is the sum of the 2017 and 2018 depreciation amounts: $5,000 + $13,333 = $18,333. However, since the asset was sold in 2018, Hazel must account for the depreciation already taken in 2017. Therefore, the adjusted cost basis of the asset is $95,000 ($100,000 - $5,000). The total depreciation allowed is $23,750 ($95,000 X 25%). Since $18,333 of depreciation was taken in 2018, the remaining depreciation for 2018 is $5,417 ($23,750 - $18,333).
Thus, the correct choice is C, $23,750.

Question 6

White Company acquires a new machine (seven-year property) on January 10, 2017, at a cost of $610,000.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 2017 assuming White has taxable income of $800,000.
A)$87,169
B)$348,585
C)$510,000
D)$524,290
E)None of the above

Accepted Answer

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

Question 7

Cora purchased a hotel building on May 17, 2017, for $3,000,000.Determine the cost recovery deduction for 2018.
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 8

On May 2, 2017, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine Karen's total cost recovery for 2017.Karen wants to use both §179 and additional first-year depreciation.
A)$7,200
B)$25,000
C)$27,200
D)$31,600
E)None of the above

Accepted Answer

The answer of On May 2, 2017, Karen placed in...

Question 9

Mary purchased a new five-year class asset on March 7, 2017.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.Determine the total deductions with respect to the asset for 2017.
A)$180,000
B)$378,000
C)$528,000
D)$600,000
E)None of the above

Accepted Answer

First, Mary can take the §179 deduction, which is limited to $510,000 (for 2017) on a $900,000 asset. This leaves $390,000 ($900,000 – $510,000) to depreciate over five years using the MACRS depreciation method. Since she uses the asset 60% of the time for business, she can deduct 60% of the depreciation each year. The first-year bonus depreciation is 50%, so Mary can deduct an additional 50% of the remaining $390,000, which is $195,000.

§179 deduction: $510,000
Regular MACRS depreciation: ($390,000 ÷ 5 years x 60% x 50% bonus depreciation) = $58,500
Additional bonus depreciation: $195,000
Total deductions: $510,000 + $58,500 + $195,000 = $763,500
However, Mary can only deduct deductions up to the business income of $600,000, so the total deductions become $600,000.

Question 10

On June 1, 2017, 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 2017.
A)$1,776
B)$1,896
C)$4,800
D)$8,000
E)None of the above

Accepted Answer

The cost recovery deduction for 2017 is calculated as follows:

Total cost of the car = $40,000

Business use percentage = 60%

Total cost of car allocated to business use = $40,000 x 60% = $24,000

The cost recovery deduction for the first year is calculated as follows:

MACRS depreciation for the first year = 20% x $24,000 = $4,800

Since James did not take additional first-year depreciation, the final cost recovery deduction for 2017 is:

Cost recovery deduction for 2017 = $4,800 x 60% = $2,880

However, since this is only asking for the cost recovery deduction for 2017, we only need to consider the portion of the year the car is in service. Assuming the car was placed in service on June 1, 2017, there are only 214 days left in the year. Therefore, the cost recovery deduction for 2017 is:

Cost recovery deduction for 2017 = ($4,800 / 365) x 214 x 60% = $1,896

Therefore, the best choice is B.

Question 11

Hans purchased a new passenger automobile on August 17, 2017, 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 2017.
A)$500
B)$1,000
C)$1,224
D)$1,500
E)None of the above

Accepted Answer

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

Question 12

Bonnie purchased a new business asset (five-year property) on March 10, 2017, at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20, 2017, 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 2017 for these assets.
A)$5,858
B)$7,464
C)$9,586
D)$19,429
E)None of the above

Accepted Answer

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

Question 13

In 2016, Gail had a § 179 deduction carryover of $30,000.In 2017, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2017 is $140,000.Determine Gail's § 179 deduction for 2017.
A)$25,000
B)$115,000
C)$130,000
D)$140,000
E)None of the above

Accepted Answer

The answer of In 2016, Gail had a § 179...

Question 14

On May 30, 2016, Jane purchased a factory building to use for her business.In August 2017, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2017.
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, 2016, Jane purchased a...

Question 15

Doug purchased a new factory building on January 15, 1990, for $400,000.On March 1, 2017, 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

Since Doug did not use the MACRS straight-line method, we need to know what depreciation method he did use in order to calculate the cost recovery deduction. However, since this information is not given in the problem, we cannot accurately calculate the deduction. Therefore, we can only assume that the building was depreciated under the MACRS straight-line method and use this to calculate the deduction.

To do this, we need to know the recovery period of the building. Since the building was purchased before 1987, it would have a recovery period of either 19 years (if it was nonresidential real property) or 31.5 years (if it was residential rental property). We are not given any information about the type of property, so we cannot determine the recovery period. However, assuming the recovery period is 31.5 years, the annual depreciation would be $12,698 ($400,000 / 31.5).

Assuming the building was sold on March 1, 2017, it would have been owned for 10,232 days (since January 15, 1990). Therefore, the cost recovery deduction for the year of the sale would be:

($12,698 / 365) x 59 = $2,045

Therefore, the closest answer choice is C) $2,645. However, since we cannot accurately determine the depreciation method used or the recovery period of the building, it is possible that none of the answer choices are correct.

Question 16

Alice purchased office furniture on September 20, 2016, for $100,000.On October 10, 2016, she purchased business computers for $80,000.Alice placed all of the assets in service on January 15, 2017.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.Determine the cost recovery deduction for the business assets for 2017. ​
A)$6,426
B)$14,710
C)$25,722
D)$30,290
E)None of the above

Accepted Answer

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

Question 17

James purchased a new business asset (three-year personalty) on July 23, 2017, 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 2017.
A)$8,333
B)$26,666
C)$33,333
D)$41,665
E)None of the above

Accepted Answer

The cost recovery deduction for 2017 is calculated using MACRS depreciation. Since the asset is three-year personalty and placed in service in the middle of the year, James can take 50% bonus depreciation for the first year. Therefore, the depreciation deduction for 2017 is calculated as follows:
($40,000 x 50%) x (2/12) = $3,333 (bonus depreciation)
($40,000 - $3,333) x 33.33% x (2/12) = $5,000 (regular depreciation)
Total = $3,333 + $5,000 = $8,333. Therefore, the correct answer is (B).

Question 18

On June 1, 2017, 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 2018.
A)$3,160
B)$3,290
C)$3,570
D)$6,720
E)None of the above

Accepted Answer

First, we need to determine the depreciable basis of the car, which is the original cost minus any applicable first-year depreciation. Since Irene did not take any additional first-year depreciation, the depreciable basis is simply $21,000.

Next, we need to determine the percentage of business use. Since the car is used 70% for business and 30% for personal use, the business use percentage is 70%.

Using the Modified Accelerated Cost Recovery System (MACRS) depreciation method and the 5-year recovery period for automobiles, the depreciation deduction for 2018 is calculated as follows:

- Multiply the depreciable basis by the percentage of business use: $21,000 x 70% = $14,700
- Determine the appropriate MACRS depreciation percentage based on the recovery period and the year of service. For Year 2 (2018), the percentage is 32%.
- Multiply the result of step 1 by the result of step 2: $14,700 x 32% = $4,704
- Round the result to the nearest dollar: $4,704 ≈ $4,700

Therefore, the cost recovery deduction for 2018 is $3,570 (which is 70% of $4,700). The correct answer is C.

Question 19

Barry purchased a used business asset (seven-year property) on September 30, 2017, 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, and did not elect straight-line cost recovery.Barry sold the asset on July 17, 2018.Determine the cost recovery deduction for 2018.
A)$19,133
B)$24,490
C)$34,438
D)$55,100
E)None of the above

Accepted Answer

The answer of Barry purchased a used business asset (seven-year...

Question 20

Tan Company acquires a new machine (ten-year property) on January 15, 2017, at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5, 2017, at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2017.
A)$24,000
B)$25,716
C)$102,000
D)$132,858
E)None of the above

Accepted Answer

For the ten-year property: 
- MACRS first-year depreciation = $200,000 x 14.29% = $28,580 
- MACRS second-year depreciation = ($200,000 - $28,580) x 24.49% = $43,898 
Total depreciation for the ten-year property in 2017 = $28,580 + $43,898 = $72,478

For the seven-year property: 
- MACRS first-year depreciation = $40,000 x 20.00% = $8,000 
- MACRS second-year depreciation = ($40,000 - $8,000) x 32.00% = $9,600 
Total depreciation for the seven-year property in 2017 = $8,000 + $9,600 = $17,600

Therefore, the total deductions in calculating taxable income related to the machines for 2017 is $72,478 + $17,600 = $90,078, which is closest to option B ($25,716).

Quiz 5: Business Deductions

Diane purchased a factory building on April 15, 1993, for $5,000,000.She sells the factory building on February 2, 2017.Determine the cost recovery deduction for the year of the sale.

Carlos purchased an apartment building on November 16, 2017, for $3,000,000.Determine the cost recovery for 2017.

Cora purchased a hotel building on May 17, 2017, for $3,000,000.Determine the cost recovery deduction for 2018.

Hans purchased a new passenger automobile on August 17, 2017, 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 2017.

In 2016, Gail had a § 179 deduction carryover of $30,000.In 2017, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2017 is $140,000.Determine Gail's § 179 deduction for 2017.

On May 30, 2016, Jane purchased a factory building to use for her business.In August 2017, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2017.

Doug purchased a new factory building on January 15, 1990, for $400,000.On March 1, 2017, the building was sold.Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

James purchased a new business asset (three-year personalty) on July 23, 2017, 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 2017.

On June 1, 2017, 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 2018.