Exam 7: Property Acquisitions and Cost Recovery Deductions

Other Objective Questions Indicated by a P for personalty, R for realty, or B for both personalty and realty which are subject to the following provisions: -Mid-quarter convention

Other Objective Questions Indicated by a P for personalty, R for realty, or B for both personalty and realty which are subject to the following provisions: -Joe started a new business this year. He had purchased a computer two years ago for $4,000 and decided to use it in his business until he could afford a new system. He could purchase a new computer with the same specifications for $1,800, but his used computer is worth only $1,100. What is his computer's basis for depreciation?

William has decided to purchase a large apartment complex. He pays $100,000 cash, obtains a loan on the property for $500,000, and assumes the first mortgage balance of $250,000. He also gives the sellers $100,000 of marketable securities that he purchased three years ago for $125,000. He paid a finder's fee of $5,000, legal fees of $6,000, and transfer taxes of $12,000. What is William's acquisition basis for the building? Does he have any other tax consequences as a result of this purchase?

Other Objective Questions Indicated by a P for personalty, R for realty, or B for both personalty and realty which are subject to the following provisions: -Section 179 expensing

What are the permissible tax treatments for research and experimentation expenditures?

The alternative depreciation system uses a straight-line allocation of an asset's cost to determine depreciation expense.

Which averaging conventions are used for MACRS depreciation?

GFC Corporation purchased a new $50,000 automobile for business use by its president in June, 2018. A) Determine the corporation's maximum depreciation deduction in years 1 and 2. In what year will the corporation take its final depreciation deduction if the car is held until fully depreciated? B) How would your answers change if the automobile was purchased and placed in service in March of 2017? C) How would your answer change if the automobile was used, purchased, and placed in service in March of 2017?

On June, 20, 2018, Simon Corporation (a calendar-year corporation) purchased and placed in service a new automobile costing $68,000. This vehicle is used 100% for business. Simon makes whatever elections are necessary to maximum its overall depreciation deduction for the year of acquisition. What is Simon Corporation's maximum cost recovery deduction for the automobile for 2020?

Research and experimentation expenditures can be:

The cost of assets with useful lives expected to extend for 2 or more years are capitalized with costs allocated over their useful lives.

Warren leases an auto valued at $18,750 for his business and personal use on May 1, 2017. His extensive records indicate he used the automobile 85 percent for business and 15 percent for personal use. He starts making monthly lease payments of $235 on June 1, 2017. What are the tax consequences for Warren in year 1 and 2 as a result of this lease contract?

Josephine Company, a sole proprietorship whose owner is in the 35 percent marginal tax bracket, purchases five-year MACRS property in mid-year for $12,000. What is its after-tax cost of this asset if it uses a 6 percent discount rate for project evaluation? No Section 179 expensing or bonus depreciation is claimed for this property.

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2018. It purchased and placed in service the following assets during 2018: All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. If YumYum does not apply Section 179 expensing or bonus depreciation, but elects to use straight-line depreciation on all of its assets, how much is its 2018 depreciation deduction?

Gonzalez Corporation is a calendar-year taxpayer. What is the MACRS depreciation percentage deduction for the first year for a 7-year asset acquired February 15 under the mid-quarter convention.

Automobiles are subject to specific limitations on the amount of annual depreciation deductions.

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2018: All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2018. What would be Sanjuro Corporation's cost recovery deduction for the computer equipment for 2019?

In May 2017, Stephen acquired a used automobile for $12,000 that he used 75% for business. No Sec. 179 election was made. In 2017, Stephen's business use of the automobile decreases to 45%. As a result of this change in business use:

Other Objective Questions Indicated by a P for personalty, R for realty, or B for both personalty and realty which are subject to the following provisions: -The after-tax cost of an asset

Research expenditures must be capitalized and amortized over the period the research is expected to benefit the business.