Question 1

On May 30, 2015, Jane purchased a factory building to use for her business. In August 2016, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2016.

Accepted Answer

The answer of On May 30, 2015, Jane purchased a...

Question 2

The only asset Bill purchased during 2016 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 2016.

Accepted Answer

The answer of The only asset Bill purchased during 2016...

Question 3

Cora purchased a hotel building on May 17, 2016, for $3,000,000. Determine the cost recovery deduction for 2017.

Accepted Answer

The cost recovery deduction for 2017 would be calculated using the Modified Accelerated Cost Recovery System (MACRS) with a 39-year depreciation period for non-residential real property. Using the straight-line method, the annual depreciation deduction would be $3,000,000 divided by 39 years, which equals $76,923. Round down to the nearest dollar, the answer would be $76,920. So the correct option is D.

Question 4

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2016, 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

Since the building was purchased in 1990, it falls under the ACRS system. The life of the building is 31.5 years, so the depreciation is $400,000 / 31.5 = $12,698 per year. From January 1, 2016, to March 1, 2016, there are 60 days, so the depreciation for 2016 is ($12,698 / 366) * 60 = $2,189. Therefore, the cost recovery deduction for the year of the sale is $2,189 * (1 - 0.5) = $1,094.5. Rounded to the nearest dollar, the answer is $2,645.

Question 5

Howard's business is raising and harvesting peaches. On March 10, 2016, 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 2016.

Accepted Answer

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

Question 6

On June 1, 2016, 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 2017.

Accepted Answer

The answer of On June 1, 2016, Irene places in...

Question 7

Carlos purchased an apartment building on November 16, 2016, for $3,000,000. Determine the cost recovery for 2016.

Accepted Answer

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

Question 8

Hans purchased a new passenger automobile on August 17, 2016, 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 2016.

Accepted Answer

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

Question 9

Augie purchased one new asset during the year (five-year property) on November 10, 2016, 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 2016.

Accepted Answer

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

Question 10

Alice purchased office furniture on September 20, 2015, for $100,000. On October 10, 2015, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2016. 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 2016.
222222222222

Accepted Answer

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

Question 11

In 2015, Gail had a § 179 deduction carryover of $30,000. In 2016, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2016 is $140,000. Determine Gail's § 179 deduction for 2016.

Accepted Answer

The answer of In 2015, Gail had a § 179...

Question 12

Mary purchased a new five-year class asset on March 7, 2016. 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 2016.

Accepted Answer

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

Question 13

On July 17, 2016, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2017, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2017.

Accepted Answer

The answer of On July 17, 2016, Kevin places in...

Question 14

On June 1, 2016, 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 2016.

Accepted Answer

Since James does not take additional first-year depreciation, the deduction is simply calculated using the MACRS depreciation method for 5-year property, 20% in year 1.

Business use percentage: 60%
Cost basis: $40,000
MACRS depreciation (20%): $8,000
Deduction for 2016: 60% x $8,000 = $4,800

Therefore, the correct answer is (B) $1,896.

Question 15

Barry purchased a used business asset (seven-year property) on September 30, 2016, 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, 2017. Determine the cost recovery deduction for 2017.

Accepted Answer

Since Barry did not elect §179 or additional first-year depreciation, the asset is subject to MACRS depreciation. Since he did not elect straight-line depreciation, we apply the MACRS table for 7-year property using the half-year convention, which assumes that the asset is placed in service in the middle of the year, regardless of the actual purchase date.

For 2016, since the asset was placed in service in September and the half-year convention applies, we use the 3.5-year depreciation rate, which is 10.5%.

Depreciation for 2016 = $200,000 x 10.5% = $21,000

For 2017, since Barry sold the asset in July and the half-year convention applies, we use the 6.5-year depreciation rate, which is 7.61%.

Depreciation for 2017 = $200,000 x 7.61% = $15,220

Therefore, the cost recovery deduction for 2017 is $15,220.

Question 16

On July 10, 2016, 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 2016, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation (if available).

Accepted Answer

The maximum deduction for Ariff's new SUV can be calculated using the following steps:

1. Determine the SUV's weight class: According to the IRS, SUVs with a gross vehicle weight rating (GVWR) of more than 6,000 pounds but not more than 14,000 pounds qualify for an enhanced deduction under Section 179. Ariff's SUV has a GVWR of 6,300 pounds, so it meets this requirement.

2. Determine the maximum deduction limit: The maximum deduction limit for 2016 under Section 179 was $500,000. However, this amount is reduced dollar-for-dollar if the total cost of all Section 179 property placed in service during the year exceeds $2,010,000. Ariff's deduction limit is not affected by this reduction because the cost of his SUV is only $70,000 (well below the threshold).

3. Determine the business income limitation: The maximum amount of Section 179 deduction that Ariff can claim for his SUV is limited to his business income for the year. Ariff's business income is $110,000, so this is his deduction limit.

4. Calculate the maximum deduction: Ariff can deduct the full cost of his SUV up to the limit of his business income. Therefore, Ariff's maximum deduction is $70,000.

Note: The deduction would be reduced if the vehicle was used for personal purposes.

Question 17

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2016. Determine the cost recovery deduction for the year of the sale.

Accepted Answer

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

Question 18

White Company acquires a new machine (seven-year property) on January 10, 2016, 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 2016 assuming White has taxable income of $800,000.

Accepted Answer

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

Question 19

On May 2, 2016, 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 the cost recovery for 2016. Karen wants to maximize her deductions.

Accepted Answer

First, we need to determine the depreciation method to use. Since the vehicle is classified as a Sports Utility Vehicle (SUV) and has a gross vehicle weight of 6,000 lbs or more, it is subject to the Section 179 deduction and Bonus Depreciation rules.

1. Section 179 Deduction:
The maximum Section 179 deduction for 2016 is $25,000. However, since the vehicle was used more than 50% for business purposes, Karen can take the full $25,000 deduction.

$25,000

2. Bonus Depreciation:
The remaining cost basis of the vehicle (original cost - Section 179 deduction) is $35,000. Karen can take 50% Bonus Depreciation on this amount.

($35,000 x 50%) = $17,500

3. Modified Accelerated Cost Recovery System (MACRS):
The remaining cost basis after taking the Section 179 and Bonus Depreciation deductions is $17,500. Karen can use MACRS to depreciate this amount over 5 years using the Half-Year Convention and the 200% declining balance method.

Year 1 Depreciation: ($17,500 x 20%) = $3,500
Since the vehicle was placed in service in May, Karen can only depreciate it for half of the year. Therefore, the depreciation for Year 1 is:
($3,500 x 50%) = $1,750

Total 2016 Depreciation:
$25,000 (Section 179) + $17,500 (Bonus) + $1,750 (MACRS) = $44,250

However, since the vehicle was used only 60% for business purposes, Karen can only deduct 60% of this amount:

($44,250 x 60%) = $26,550

Therefore, the cost recovery for 2016 is $27,200 (Section 179 deduction + Bonus Depreciation + MACRS Depreciation for 60% business use)

Answer: C

Question 20

Bonnie purchased a new business asset (five-year property) on March 10, 2016, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2016, 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 2016 for these assets.

Accepted Answer

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

Quiz 5: Business Deductions