Exam 8: Depreciation and Sale of Business Property

Steve Corp bought a $600,000 apartment building in June of 2018. Of the purchase price, $104,950 is allocated to the value of the land. What is the maximum amount of depreciation that the company can claim in 2019 (Year 2) for the building?

The depreciation recapture provisions are designed to prevent taxpayers from converting capital gains into ordinary income. ​

The owner of M&N Milling exchanged a building used in his business for a different building. M&N Milling's basis in the building was $200,000 and the owner still owes $60,000 related to the purchase of the building. The other party to the exchange, M. Grinding, assumed the liability along with the building and transferred a newer and smaller building worth $300,000 to M&N Milling. a. Calculate M&N Milling's 1. Realized gain on the exchange. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $_____ 2. Recognized gain on the exchange. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $______ b. Calculate the adjusted basis of the newer machine. $\quad$ $\quad$ $________

The exchange of inventory does not qualify for like-kind exchange treatment.

The tax law imposes restrictions on the depreciation of "listed" property such as automobiles.

If listed property is used more than 50 percent in a qualified business use, depreciation must be calculated using the straight-line method.

In the current year, Penny exchanges an investment property in Santa Barbara with a mountain view for a lot with an ocean view in a qualifying like-kind exchange. Penny's basis in the land given up is $100,000 and the property has a fair market value of $250,000. In exchange for her property, Penny receives land with a fair market value of $200,000 and cash of $20,000. In addition, the other party to the exchange assumes a mortgage loan on Penny's property of $30,000. a.Calculate Penny's realized gain, if any, on the exchange. b.Calculate Penny's recognized gain, if any, on the exchange. c.Calculate Penny's basis in the property received.

Choose the correct statement.

Johnny owned a gas station with an adjusted basis of $300,000. After it was destroyed in a fire, he received $560,000 from the insurance company. Within the next year, he bought a new gas station for $500,000. What is Johnny's recognized gain and what is the basis in the new building?

If an asset's actual useful life is longer than the assigned recovery period, the MACRS tables cannot be used.

Elmer sold machinery used in his business for $20,000. The machinery originally cost $80,000 and had $45,000 of accumulated depreciation at the time of the sale. It is his only sale this year. a.What is the gain or loss on the sale of the machinery? b.Is the gain or loss treated as capital or ordinary? Explain.

During the current year, an office desk used by Pat in his business was completely destroyed by a fire. The adjusted basis of the desk was $900 (original cost of $1,500 less accumulated depreciation of $600). Pat received $500 from his insurance company, but he did not replace the desk. a.What is the amount of Pat's recognized gain or loss (deduction) as a result of the casualty? b.Assuming this is Pat's only casualty gain or loss for the year, what is the nature of the gain or loss?

A taxpayer places a $50,000 5-year recovery period asset in service in 2019. This is the only asset placed in service in 2019. Assuming half-year convention, no bonus depreciation, an election to expense under Section 179, and taxable income after all deductions except Section 179 of $5,000, what is the amount of Section 179 immediate expensing?

Which of the following is true about the MACRS depreciation system?

A taxpayer places a $50,000 5-year recovery period asset in service in 2019. This is the only asset placed in service in 2019. Assuming half-year convention, no immediate expensing, what is the amount of bonus depreciation?

The taxpayer generally has only 1 year to replace involuntarily converted property in order to postpone the recognition of gain.

After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city. He sold the goat milking machine for $1,000. The machine originally cost $1,200 and had $820 of accumulated depreciation at the time of sale. a. What is the total gain or loss on the sale of the goat milking machine? b. Is the gain or loss treated as capital or ordinary? Explain.

Which one of the following qualifies as a like-kind exchange?

Gain recognized on the sale of a Section 1245 asset is classified as ordinary income up to the amount of depreciation claimed.

Scott purchases a small business from Lew on July 1, 2019. He paid the following amounts for the business: Land \ 100,000 Commercial building 200,000 Furniture and equipment 78,500 Going-concern value 50,000 Workforce in place 29,500 Total \ 458,000 a.How much of the $458,000 purchase price is for Section 197 intangible assets? b.What amount can Scott deduct on his 2019 tax return as Section 197 intangible amortization?