Individual Income Tax Chap 8 – Flashcards

If 40% or more of the value of all property other than eligible real estate placed in service during the year is placed in service during the last quarter, the mid-quarter convention applies under MACRS. a. True b. False

Franchises generally are § 197 intangibles. a. True b. False

On June 1 of the current year, Rodney converted his personal residence into a rental property. At the time of the conversion, the house was worth $210,000. Five years ago Rodney purchased the building for $320,000. The building is still encumbered by a $100,000 mortgage. What is the basis of the building for cost recovery? a. $110,000. b. $210,000. c. $220,000. d. $320,000. e. None of the above.

Vivian purchased a used business asset (five-year property) on May 10, 2014, at a cost of $100,000. She did not elect to expense any of the asset under § 179, nor did she elect straight-line cost recovery. Vivian sold the asset on January 20, 2017. Determine the cost recovery deduction for 2017. a. $2,400. b. $3,226. c. $5,760. d. $11,520. e. None of the above.

Cody purchased a warehouse on July 15, 2008, for $3,000,000. She sells the factory building on February 2, 2014. Determine the cost recovery deduction for the year of the sale. a. $3,204. b. $9,615. c. $15,876. d. $76,920. e. None of the above.

In 2013, Valentina had a § 179 deduction carryover of $15,000. In 2014, she elected § 179 for an asset acquired at a cost of $20,000. Valentina's § 179 business income limitation for 2014 is $325,000. Determine Valentina's § 179 deduction for 2014. a. $15,000. b. $20,000. c. $25,000. d. $35,000. e. None of the above.

The only asset Sophie purchased during 2014 was a used seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $100,000. The asset was used 30% for business, 40% for the production of income, and the rest of the time for personal use. Sophie 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 Sophie's maximum deduction with respect to the property for 2014. a. $2,000. b. $4,998. c. $14,000. d. $100,000. e. None of the above.

On March 15, 2013, Antonia purchased an automobile that cost $15,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) Determine the cost recovery deduction for 2014. a. $3,360. b. $3,430. c. $4,800. d. $4,900. e. None of the above.

On July 1, 2014, Tatiana leases and places in service a passenger automobile. The lease will run for five years and the payments are $400 per month. During 2014, he uses his car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table is $500, determine Tatiana's inclusion amount. a. $500. b. $300. c. $250. d. $150. e. None of the above.

On September 1, 2014, Finch Corporation purchased an existing business. With respect to the acquired assets of the business, Finch allocated $500,000 of the purchase price to a covenant not to compete. The covenant will expire in five years. Determine the total amount that Finch may amortize for 2014 for the covenant. a. $0. b. $11,111. c. $100,000. d. $500,000. e. None of the above.

The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 10 years. a. True b. False

Yancy purchased a new business asset (three-year personalty) on July 23, 2014, at a cost of $40,000. Yancy does not take additional first-year depreciation Determine the cost recovery deduction for 2014. a. $30,000 b. $8,000 c. $13,332 d. $40,000 e. None of these choices are correct

If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight line depreciation to slow down the cost recovery. a. True b. False

Walnut purchased a factory building on November 15, 1995, for $5,000,000. She sells the factory building on February 2, 2014. Determine the cost recovery deduction for the year of the sale. a. $26,458 b. $16,025 c. $19,844 d. $158,750 e. None of these choices are correct.

Israel purchased a new passenger automobile on August 17, 2014, 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 2014. a. $1,224 b. $500 c. $1,000 d. $1,500 e. None of these choices are correct.

When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being allocated to goodwill and covenants not to compete, rather than equipment. a. True b. False

On June 1, 2014, Mako Corporation purchased an existing business. With respect to the acquired assets of the business, Mako allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Mako may amortize for 2014 for the patent. a. $11,667 b. $0 c. $1,667 d. $35,000 e. None of these choices are correct.

The cost recovery basis for property converted from personal use to business use is always the fair market value of the property at the time of the conversion. a. True b. False

If a taxpayer uses regular MACRS for 15 and 20-year class property, an alternative minimum tax adjustment is not necessary with respect to the depreciation on that property. a. True b. False

Cost depletion enables the taxpayer to recover more than the cost of an asset. a. True b. False

Taxpayers may not elect to use the straight-line method under ACRS for personalty. a. True b. False

If depreciation is claimed, it should be supported by completing Form 4562 and then transferred to Form 1040. a. True b. False

All eligible real estate under ACRS is permitted one-half month of cost recovery in the month of disposition. a. True b. False

Maple Company acquires a new machine (seven-year property) on January 10, 2014, at a cost of $125,000. Maple makes the election to expense the maximum amount under § 179. No election is made to use the straight-line method. Maple does not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machine for 2014 assuming Maple has taxable income of $800,000. a. $39,290 b. $14,290 c. $17,863 d. $125,000 e. None of these choices are correct.

On June 1, 2014, Eddie 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.) Eddie does not take additional first-year depreciation. Determine the cost recovery deduction for 2014. a. $6,696 b. $1,776 c. $1,896 d. $8,000 e. None of these choices are correct.

Depletion reported by a sole proprietor is reported on Schedule D. a. True b. False

The only asset Chadwick purchased during 2014 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. Chadwick 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 Chadwick's maximum deduction with respect to the property for 2014. a. $28,573 b. $1,428 c. $2,499 d. $50,000 e. None of these choices are correct.

Land improvements generally are eligible for cost recovery. a. True b. False

Intangible drilling costs must be capitalized and written off through depletion. a. True b. False

Shane purchases used seven-year class property at a cost of $200,000 on April 20, 2014. Determine Shane's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming Shane does not elect § 179. a. $14,280 b. $2,500 c. $10,000 d. $21,420 e. None of these choices are correct.