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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
e. None of these choices are correct.
The half-year convention applies in this case.
Five-year property: Additional first-year depreciation ($30,000 � .50) $15,000
MACRS cost recovery ($15,000 � .20) 3,000
Seven-year property: Additional first-year deprec
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Which of the following assets would be subject to cost recovery?
a. An antique vase in a doctor's waiting room.
b. Landscaping around the doctor's office.
c. A painting by Picasso hanging on a physician's office wall.
d. "A painting by Picasso
b. Landscaping around the doctor's office.
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.
c. $25,716
The total cost recovery is computed as follows.
10-year property
MACRS cost recovery ($200,000 � .10) $20,000
7-year property
MACRS cost recovery ($40,000 � .1429) 5,716
Total cost recovery $25,716
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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 as
b. $30,290
The half-year convention applies.
Regular MACRS
Furniture (seven-year property)
$100,000 � .1429 $14,290
Computers (five-year property)
$80,000 � .20 16,000
Total cost recovery $30,290
On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000
c. $90,000
The basis is $90,000, the lower of the adjusted basis ($120,000) or fair market value ($90,000) at the date of conversion. The mortgage of $50,000 does not affect adjusted basis.
Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows.
Cost Recovery Allowed Cost Recovery Allowable
Year 1 $16,000 $ 8,000
Year 2 9,600 12
c. $11,480
Cost $40,000
Less the greater of cost recovery allowed or allowable
($16,000 + $12,800 + $7,680) (36,480)
Adjusted basis $ 3,520
The recognized gain is $11,480 ($15,000 - $3,520).
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 fi
c. $23,750
The asset was placed in service in October 2017; as a result, the mid-quarter convention is used. 2018 is the second year of cost recovery. ($100,000) � .38 � (2.5/4) = $23,750.
Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape Cor
d. In the following year using a half-year convention.
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. $26
a. $26,666
Additional first-year depreciation ($40,000 � .50) $20,000
MACRS cost recovery ($20,000 � .3333) 6,666
Total cost recovery $26,666
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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
a. $24,490
The half-year convention applies in this case [$200,000 � .2449 � 1/2 = $24,490].
Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2017. The car's adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insuranc
a. $500
Amount (lesser of adjusted basis or FMV decline) $10,000
Less: Insurance recovery as if the claim had been filed (8,000)
Statutory floor (100)
AGI limitation (10% � $14,000) (1,400)
Deductible loss $ 500
The loss is permitted for the uninsured por
In 2017, Mary had the following items:
Salary $30,000
Personal use casualty gain 10,000
Personal use casualty loss (after $100 floor) 17,000
Other itemized deductions 4,000
Assuming that Mary files as head of household (has one dependent child), determine
a. $12,550
Salary $30,000
Personal use casualty gains in excess of personal use casualty losses ($10,000 - $10,000) -0-
Adjusted gross income $30,000
Less: Deductions
Itemized deductions
Casualty loss ($17,000 - $10,000) $7,000
AGI floor (10% � $30,000) (
Bruce, who is single, had the following items for the current year:
? Salary of $80,000.
? Gain of $20,000 on the sale of � 1244 stock acquired two years earlier.
? Loss of $75,000 on the sale of � 1244 stock acquired three years earlier.
? Worthless stoc
a. $27,000
Salary $80,000
� 1244 ordinary loss (50,000)
Long-term capital gain $20,000
Long-term capital loss
Excess � 1244 loss ($75,000 - $50,000) $25,000
Worthless security 15,000 (40,000)
Net long-term capital loss (limited to $3,000) (3,000)
Adjusted
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John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows:
Cost basis $260,000
Value before the fire 400,000
Value after the fire 100,000
Insur
a. $0
Gain on home ($260,000 - $250,000) = $10,000.
John has no itemized casualty loss deduction because casualty gains exceed casualty losses. There is no casualty loss on the car because the accident was the result of willful negligence.
Jim had a car accident in 2017 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. Jim received an insuran
e none -
The car is used for business use and hence, the amount of the loss is $40,000 (adjusted basis) reduced by the insurance recovery ($21,000). The $19,000 loss is not subject to the $100 floor per event and the 10%-of-AGI limitation. So the loss is
John files a return as a single taxpayer. In 2017, he had the following items:
? Salary of $40,000.
? Loss of $65,000 on the sale of � 1244 stock acquired two years ago.
? Interest income of $6,000.
Determine John's AGI for 2017.
a. $0.
b. ($5,000).
c. $4
a. $0.
Salary $40,000
Interest income 6,000
Ordinary loss (� 1244 ordinary loss) (50,000)
AGI $ -0-
$15,000 ($65,000 - $50,000) is long-term capital loss. Of this amount, no loss can be used because there is no ordinary income. $15,000 will be carried for
Which of the following events would produce a deductible loss?
a. Termite infestation of a personal residence over a several year period.
b. Damages to personal automobile resulting from a taxpayer's willful negligence.
c. A misplaced diamond ring.
d. Ero
E - none
In 2017, Grant's personal residence was completely destroyed by fire. Grant was insured for 100% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent dat
c. $0
The proceeds received are $250,000. Therefore, Grant has no casualty gain or a casualty loss.
On July 20, 2016, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is � 1244 small business stock) for $24,000. On November 10, 2016, Matt purchased an additional 1,000 shares of Orange Corporation stock from a
e. None of these choices are correct.
mount realized (1,000 shares � $30 per share) $ 30,000
Less: basis (150,000)
Recognized loss ($120,000)
STCL ($120,000)
The stock is not � 1244 stock because it was not purchased from the corporation.
Amount realized
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In 2017, Wally had the following insured personal casualty losses (arising from one casualty). Wally also had $42,000 AGI for the year before considering the casualty.
Fair Market Value
Asset Adjusted Basis Before After Insurance Recovery
A $9,
e. None of these choices are correct.
Asset A $5,000 loss
Asset B $1,000 gain
Asset C 800 loss
Total $5,800 loss $1,000 gain
AGI before casualty $42,000
Ordinary gain 1,000
Ordinary loss (1,000)
AGI after casualty $42,000
Casualty loss ($5,800 - $1,000) $
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 re
a. $588,750
The mid-quarter convention applies to the MACRS calculation.
� 179 expense $510,000
Additional first-year depreciation [($660,000 - $510,000) � .50] $75,000
MACRS cost recovery ($75,000 � .05) 3,750
Total $78,750
Income from the business befor
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. $4,815
b. $2,889
c. $2
b. $2,889
MACRS cost recovery ($300,000 � .00963); 39-year real property; month 8 = $2,889
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. $26,458
b. $19,838
c. $16,025
d. $158,750
e. None of these choices
b. $19,838
.03174 � $5,000,000 � 1.5/12 = $19,838. Non-residential real estate placed in service before May 3, 1993 (31.5-year life).
The factor for determining the cost recovery for eligible real estate under MACRS, in the year of disposition, is taken from the month of the disposition.
True
False
false
The factor is taken from the month the real estate is placed in service.
Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.
True
False
False
All property sold is treated as being sold at the mid-point of the quarter in which it is sold.
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. $2,645
b. $12,696
c. $1,5
a. $2,645
.03174 � $400,000 � 2.5/12 = $2,645. Non-residential real estate placed in service after December 31, 1986 and before May 13, 1993 (31.5-year life)
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
d
The listed property does not pass the predominantly business usage test. Therefore, neither � 179 expensing nor additional first-year depreciation can be taken. In addition, only straight-line cost recovery can be used.
Maximum deduction ($50,000 � .071
Cora purchased a hotel building on May 17, 2017, for $3,000,000. Determine the cost recovery deduction for 2018.
a. $59,520
b. $69,000
c. $48,150
d. $76,920
e. None of these choices are correct.
d. $76,920
The hotel building is nonresidential realty. (.02564 � $3,000,000 = $76,920.)
Carlos purchased an apartment building on November 16, 2017, for $3,000,000. Determine the cost recovery for 2017.
a. $22,740
b. $9,630
c. $11,910
d. $13,950
e. None of these choices are correct.
e. None of these choices are correct.
$3,000,000 � .00455 = $13,650.
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
e. None of these choices are correct.
� 179 expense $510,000
Additional first-year depreciation [($610,000 - $510,000) � .50] 50,000
MACRS cost recovery ($50,000 � .1429) 7,145
Total $567,145