Exam 8: Depreciation and Sale of Business Property

Betty purchases a used $12,000 car in 2019, to use exclusively in her business. a. What will the standard MACRS depreciation schedule be for the 6 years the auto is depreciated (no Section 179 or bonus depreciation)? Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: b. If Betty holds the car until it is fully depreciated, and uses straight-line depreciation, how many years will this take?

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Question 1

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a. Since the car costs only $12,000, it is not subject to the luxury auto limitations. Using the standard MACRS depreciation:
Year 1: $2,400 = $12,000 × 20%
Year 2: $3,840 = $12,000 × 32%
Year 3: $2,304 = $12,000 × 19.2%
Year 4: $1,382 = $12,000 × 11.52%
Year 5: $1,382 = $12,000 × 11.52%
Year 6: $692 = $12,000 × 5.76% (Remaining balance)
b. The depreciation would be spread over 6 years.

In the current year, Helen sold Section 1245 property for $6,000. The property cost $26,000 when it was purchased 5 years ago. The depreciation claimed on the property was $24,000. a.Calculate the adjusted basis of the property. b.Calculate the amount of ordinary income under Section 1245. c.Calculate the Section 1231 gain.

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Question 2

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a. $\quad \$ 2,000 = \$ 26,000 - \$ 24,000$
b. $\quad \$ 4,000 = \$ 6,000$ sales price $- \$ 2,000$ adjusted basis
c. $0. The gain recognized did not exceed the amount of the potential Section 1245 recapture

On October 21, 2019, Jay purchased a commercial building. The cost basis assigned to the building is $700,000. Jay also owns a residential apartment building he purchased on June 15, 2018 with a cost basis of $500,000. a.Calculate Jay's total depreciation deduction for the buildings for 2019, using MACRS. b.Calculate Jay's total depreciation deduction for the commercial building for 2020, using MACRS.

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Question 3

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a.
$\begin{array} { l } \text {Commercial (nonresidential) $ (\$ 700,000 \times 0.535 \%) $ }&\$3,745 \\ \text { Residential $ (\$ 500000 \times 3636 \%) $}&18,180 \\ \text { Total depreciation} &\$21,925\\\end{array}$

$\text { b. Commercial }(\$ 700,000 \times 2.564 \%)\quad\quad\$17,948$

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

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Question 4

Shellie purchased a passenger automobile on March 2, 2019. She paid $65,000 for the automobile and can support business use of 85 percent. Calculate the amount of depreciation on the automobile for 2019 using the accelerated MACRS method (if available), assuming Shellie does not make the election to expense or claim bonus depreciation.

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Question 5

Which one of the following is a Section 197 intangible?

(Multiple Choice)

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Question 6

During 2019, Travis purchases $13,000 of used manufacturing equipment (7-year property) for use in his business, his only asset purchase that year. Travis has taxable income from his business of $51,000 before any cost recovery. What is the maximum amount that Travis may deduct under the election to expense?

(Multiple Choice)

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Question 7

To have the like-kind exchange provisions apply, a taxpayer must make an election.

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Question 8

On January 1, 2019, Roxburgia Company places a commercial storage building in service. The costs allocated to construction of the building total $300,000 and land is accounted for separately. Which of the following is a true statement with respect to the depreciation of the building?

(Multiple Choice)

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Question 9

Which one of the following is true about Modified Accelerated Cost Recovery System (MACRS)?

(Multiple Choice)

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Question 10

Ben purchased an apartment building about 10 years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. In the current year, the building was sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the 32% tax bracket; on his current year tax return, he should report:

(Multiple Choice)

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Question 11

An asset (not an automobile) put in service in June 2019 has a depreciable basis of $1,035,000, a recovery period of 5 years, and is the only asset placed in service during the year. Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2019 (assume no income limitation)?

(Multiple Choice)

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Question 12

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

(Multiple Choice)

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Question 13

On July 15, 2019, H.P. purchases a personal computer for his home. The computer cost $4,000. H.P. uses the computer 60 percent of the time in his business, 15 percent of the time for managing his investments and the remaining 25 percent of the time for various personal uses. Calculate H.P.'s maximum depreciation deduction for 2019 for the computer, assuming he does not make the election to expense or take bonus depreciation.

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Question 14

An asset (not an automobile) placed in service in June 2019 has a depreciable basis of $2,555,000, a recovery period of 5 years, and is the only asset placed in service during the year. Assuming bonus depreciation is not used, a half-year convention, and the expensing election is made for the maximum eligible amount, what is the amount of cost that can be deducted in 2019 assuming the business earned taxable income of $1,000,000 before deducting any cost recovery on the asset?

(Multiple Choice)

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Question 15

What is the minimum number of years over which computers may be depreciated under MACRS?

(Multiple Choice)

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Question 16

An asset (not an automobile) put in service in June 2019 has a depreciable basis of $35,000 and a recovery period of 5 years and is the only asset placed in service this year. Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2019 (assume no income limitation)?

(Multiple Choice)

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Question 17

Which one of the following is true about Section 1231 assets?

(Multiple Choice)

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Question 18

Max purchases a new auto in 2019 at a cost of $56,000. He uses the car 80% for business. Assuming a half-year convention, bonus depreciation, but no immediate expensing, what is the depreciation deduction on the auto?

(Multiple Choice)

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Question 19

Dan acquired rental property in June 2009 for $370,000 and sold it in October, 2019. $78,500 in straight-line depreciation has been taken on the house. A run-up in housing prices allowed him to sell the house for $530,000. In the year of sale, Dan received $130,000 when the buyer sold some investments, an additional $200,000 when the buyer closed a loan from the bank, and took a $200,000 note from the buyer, payable on the anniversary of the sale date in 10 installments of $20,000 each plus interest on the unpaid balance. Using the installment method, calculate his taxable gain in the year of sale.

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Question 20

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Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

Which one of the following is a Section 197 intangible?

To have the like-kind exchange provisions apply, a taxpayer must make an election.

On January 1, 2019, Roxburgia Company places a commercial storage building in service. The costs allocated to construction of the building total $300,000 and land is accounted for separately. Which of the following is a true statement with respect to the depreciation of the building?

Which one of the following is true about Modified Accelerated Cost Recovery System (MACRS)?

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

What is the minimum number of years over which computers may be depreciated under MACRS?

Which one of the following is true about Section 1231 assets?

Max purchases a new auto in 2019 at a cost of $56,000. He uses the car 80% for business. Assuming a half-year convention, bonus depreciation, but no immediate expensing, what is the depreciation deduction on the auto?

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