Question 1

The Section 179 election promotes which of the following tax concept(s) or doctrine(s)?
I.Claim of Right Doctrine.
II.Administrative Convenience Concept.
III.Tax benefit rule.
IV.Substance-Over-Form Doctrine.
​

Accepted Answer

The Section 179 election allows businesses to deduct the full purchase price of qualifying equipment and/or software within the tax year it is purchased, rather than depreciating it over time. This primarily promotes the Administrative Convenience Concept by simplifying tax reporting and reducing administrative burdens on both businesses and the IRS.

Question 2

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

Accepted Answer

Since Linda had a net loss of $12,000, she cannot claim a Section 179 deduction. Therefore, the maximum amount of Section 179 deduction that Bart can claim is $11,000 ($23,000 - $12,000). The amount of equipment purchases is not relevant in determining the maximum deduction.

Question 3

Cruz Copy Shop purchases a new copy machine in July 2018 for $30,000. No other depreciable assets are placed in service in 2018. Since Cruz Copy Shop expects to be in a much higher tax bracket in future years, it desires to minimize its current cost recovery amount to the fullest extent possible. What is the amount of Cruz Copy Shop's MACRS straight-line depreciation for 2018?

Accepted Answer

The MACRS straight-line depreciation for 2018 can be calculated as follows:

- Determine the depreciation period based on the MACRS table. For a copy machine, this is 5 years. 
- Determine the applicable percentage for the first year based on the MACRS table. For a 5-year property, this is 20%. 
- Multiply the cost of the asset by the applicable percentage to get the depreciation expense for the first year.

Using these steps, the MACRS straight-line depreciation for 2018 would be:

$30,000 x 20% = $6,000
$6,000 / 2 (since the convention for mid-quarter placed in service in July) = $3,000

Therefore, the best choice is C, $3,000.

Question 4

In 2018, Oscar purchases $2,150,000 of equipment. The taxable income of the business before any Section 179 deduction is $20,000. What is Oscar's maximum Section 179 deduction in 2018?

Accepted Answer

The maximum Section 179 deduction Oscar can take is limited to the taxable income of the business, which is $20,000. 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 taxable income of the business.

Question 5

Watson Company purchases used equipment (5-year MACRS property) for $1,100,000 on July 8, 2018. Watson does not want to use bonus depreciation. What is Watson' maximum allowable cost recovery deduction for 2018 on the equipment if this is the only purchase of equipment for 2018?

Accepted Answer

Since bonus depreciation is not being used, the MACRS table should be used to determine the depreciation expense for each year. According to the table, the MACRS percentage for 5-year property is 20%.

To determine the maximum allowable cost recovery deduction for 2018, we first need to calculate the depreciation expense for the year. Using the mid-year convention (since the equipment was purchased on July 8th), the first year depreciation expense would be:

(20% / 2) x $1,100,000 = $110,000

Therefore, Watson's maximum allowable cost recovery deduction for 2018 on the equipment is $1,110,000 - the original purchase price ($1,100,000) plus the first year depreciation expense ($110,000):

$1,100,000 + $110,000 = $1,210,000

However, the question asks for only the maximum allowable cost recovery deduction for 2018 - without including the original purchase price. So the answer is simply the first year depreciation expense:

$110,000

Therefore, the best choice is C) $1,020,000.

Question 6

Sophia purchases a completely furnished condominium in Breckenridge, Colorado. She uses the condo as a rental property. Which of the following assets are subject to periodic cost recovery?
I.Land.
II.Furniture.
III.Building.
IV.Trout fishing equipment.
V.Kitchen appliances.
​

Accepted Answer

The answer of Sophia purchases a completely furnished condominium in...

Question 7

Which of the following is not part of the modified accelerated cost recovery system (MACRS)?

Accepted Answer

Sum-of-the-years digits depreciation is not allowed under MACRS. MACRS only allows for straight-line or accelerated depreciation methods.

Question 8

Davis, Inc., a motorcycle wheel manufacturer, purchased a new spoke machine in 2018 for $200,000. What are the tax effects of this purchase?
I.If taxable income is $100,000, then $100,000 can be expensed in 2018.
II.No Section 179 election is allowed if Davis decides to use a $200,000 depreciable basis.
III.If Davis had purchased a total of $4,400,000 of equipment in 2018, the corporation can deduct none of the purchases in 2018 through use of the Section 179 election.
​

Accepted Answer

The answer of Davis, Inc., a motorcycle wheel manufacturer, purchased...

Question 9

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

Accepted Answer

The maximum Section 179 deduction cannot exceed the taxable income of the business before the deduction. Since Steve's business has a taxable income of $10,000 before any Section 179 deduction, the maximum deduction he can claim is $10,000, regardless of the cost of the equipment purchased.

Question 10

Which of the following statements related to the Section 179 election to expense is (are) true?
I.A Section 179 deduction can be claimed on tangible personal property
II.A Section 179 deduction can be claimed on property held for the production of income.
III.A Section 179 deduction can be claimed on real property.
IV.A Section 179 deduction is allowed only for assets used in trade or business.
​

Accepted Answer

Statement I is true, as Section 179 allows for the deduction of tangible personal property. Statement II is false, as the property must be used in a trade or business activity, not for the production of income. Statement III is false, as Section 179 does not allow for the deduction of real property. Statement IV is true, as Section 179 deductions are only allowed for assets used in trade or business.

Question 11

During 2018, Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business. What is the amount of Witt Processing's maximum Section 179 deduction for 2018?

Accepted Answer

For the tax year 2018, the maximum Section 179 deduction was $1,000,000, subject to a phase-out threshold of $2,500,000. Since Witt Processing Corporation placed $210,000 of property in service, which is below both the maximum deduction and the phase-out threshold, the maximum Section 179 deduction they could claim is the full amount of the property placed in service, which is $210,000.

Question 12

Sorensen Corporation purchases equipment in 2018 for $200,000. Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible. How much can Sorensen deduct under Section 179?

Accepted Answer

Under Section 179 of the Internal Revenue Code, businesses can deduct the full purchase price of qualifying equipment purchased or financed during the tax year. This means that if Sorensen Corporation purchased equipment for $200,000, it could potentially deduct the entire amount in the year of purchase, assuming it meets all the requirements and limits set forth in Section 179.

Question 13

Qualified Section 179 property for a retail store includes
I.Store shelving.
II.Company auto used by salesmen.
III.Sidewalks in front of the store.
IV.Delivery van owned by the store.
​

Accepted Answer

Qualified Section 179 property includes tangible personal property such as store shelving and vehicles like delivery vans used for business purposes, as well as company autos used by salesmen if they are used more than 50% for business. Sidewalks are considered land improvements and do not qualify.

Question 14

Wu Copy Shop purchases a new copy machine in July 2018 for $30,000. No other depreciable assets are placed in service in 2018. Since Wu Copy Shop expects to be in a much higher tax bracket in future years, it desires to minimize its current cost recovery amount to the fullest extent possible. What is the amount of Wu Copy Shop's ADS depreciation for 2018?

Accepted Answer

The Alternative Depreciation System (ADS) requires using a straight-line method over a longer recovery period. For a copy machine, the ADS recovery period is 10 years. Therefore, the depreciation for 2018 is $30,000 / 10 = $3,000. However, since the machine was placed in service in July, only half-year depreciation is allowed, resulting in $1,500 for 2018.

Question 15

To compute depreciation using MACRS on an asset purchased today, you need to know
I.the asset's depreciable basis.
II.the recovery period of the asset.
III.the first and last year convention that applies to the asset's class.
IV.whether you want to minimize or maximize the current year's depreciation.
​

Accepted Answer

To compute depreciation using MACRS, you need to know the asset's depreciable basis, the recovery period, the applicable first and last year convention, and your preference for minimizing or maximizing current year's depreciation.

Question 16

Carolyn purchases a new trucks (5-year MACRS property) costing $3,500,000 for use in her floral business on January 5, 2018. What is her maximum allowable cost recovery on the trucks in 2018?

Accepted Answer

The answer of Carolyn purchases a new trucks (5-year MACRS...

Question 17

In 2018, Sanford Corporation purchases and places in service $3,370,000 of equipment for its manufacturing business. What portion of the $3,370,000 may Sanford elect to treat as a Section 179 expense?

Accepted Answer

The maximum amount that can be treated as a Section 179 expense in 2018 is $1,000,000, and the phase-out threshold is $2,500,000. Since Sanford Corporation purchases and places in service $3,370,000 of equipment, the amount exceeding the phase-out threshold is $870,000. Therefore, the maximum amount that can be treated as a Section 179 expense is $1,000,000 - $870,000 = $130,000.

Question 18

In May 2018, Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $60,000. Preston's income is $100,000. Preston does not want to claim bonus depreciation. If Preston wishes to maximize his total 2018 cost recovery deduction, what will his total cost recovery deduction be on the properties purchased in 2018?

Accepted Answer

To maximize his total 2018 cost recovery deduction, Preston should choose straight-line depreciation for both properties.

The 5-year property has a depreciation rate of 20% and a half-year convention, so Preston can deduct $15,000 ($150,000 x 0.10 x 0.5) in 2018.

The 7-year property has a depreciation rate of 14.29% and a half-year convention, so Preston can deduct $2,142 ($60,000 x 0.1429 x 0.5) in 2018.

Therefore, his total cost recovery deduction for 2018 will be $17,142 ($15,000 + $2,142).

Question 19

On June 1, 2018, AZ Construction Corporation places a $2,000,000 crane (7 year life) in service. AZ does not want to use bonus depreciation. It placed no other assets in service during the year. What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2018?

Accepted Answer

The answer of On June 1, 2018, AZ Construction Corporation...

Question 20

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

Accepted Answer

The answer of In 2018, Henry purchases $210,000 of equipment...

Quiz 10: Cost Recovery on Property: Depreciation, Depletion, and Amortization

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine.

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

In 2018, Oscar purchases $2,150,000 of equipment. The taxable income of the business before any Section 179 deduction is $20,000. What is Oscar's maximum Section 179 deduction in 2018?

Watson Company purchases used equipment (5-year MACRS property) for $1,100,000 on July 8, 2018. Watson does not want to use bonus depreciation. What is Watson' maximum allowable cost recovery deduction for 2018 on the equipment if this is the only purchase of equipment for 2018?

Sophia purchases a completely furnished condominium in Breckenridge, Colorado. She uses the condo as a rental property. Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances.

Which of the following is not part of the modified accelerated cost recovery system (MACRS) ?

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

During 2018, Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business. What is the amount of Witt Processing's maximum Section 179 deduction for 2018?

Sorensen Corporation purchases equipment in 2018 for $200,000. Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible. How much can Sorensen deduct under Section 179?

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store.

Carolyn purchases a new trucks (5-year MACRS property) costing $3,500,000 for use in her floral business on January 5, 2018. What is her maximum allowable cost recovery on the trucks in 2018?

In 2018, Sanford Corporation purchases and places in service $3,370,000 of equipment for its manufacturing business. What portion of the $3,370,000 may Sanford elect to treat as a Section 179 expense?

On June 1, 2018, AZ Construction Corporation places a $2,000,000 crane (7 year life) in service. AZ does not want to use bonus depreciation. It placed no other assets in service during the year. What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2018?

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

Quiz 10: Cost Recovery on Property: Depreciation, Depletion, and Amortization

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine. ​

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

In 2018, Oscar purchases $2,150,000 of equipment. The taxable income of the business before any Section 179 deduction is $20,000. What is Oscar's maximum Section 179 deduction in 2018?

Watson Company purchases used equipment (5-year MACRS property) for $1,100,000 on July 8, 2018. Watson does not want to use bonus depreciation. What is Watson' maximum allowable cost recovery deduction for 2018 on the equipment if this is the only purchase of equipment for 2018?

Sophia purchases a completely furnished condominium in Breckenridge, Colorado. She uses the condo as a rental property. Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances. ​

Which of the following is not part of the modified accelerated cost recovery system (MACRS) ?

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

During 2018, Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business. What is the amount of Witt Processing's maximum Section 179 deduction for 2018?

Sorensen Corporation purchases equipment in 2018 for $200,000. Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible. How much can Sorensen deduct under Section 179?

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store. ​

Carolyn purchases a new trucks (5-year MACRS property) costing $3,500,000 for use in her floral business on January 5, 2018. What is her maximum allowable cost recovery on the trucks in 2018?

In 2018, Sanford Corporation purchases and places in service $3,370,000 of equipment for its manufacturing business. What portion of the $3,370,000 may Sanford elect to treat as a Section 179 expense?

On June 1, 2018, AZ Construction Corporation places a $2,000,000 crane (7 year life) in service. AZ does not want to use bonus depreciation. It placed no other assets in service during the year. What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2018?

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine.

Sophia purchases a completely furnished condominium in Breckenridge, Colorado. She uses the condo as a rental property. Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances.

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store.