Exam 8: Depreciation and Sale of Business Property

Rod had the following loss on business-use property: Decrease in fair market value due to casualty Adjusted basis Insurance reimbursement Holding period Rod's storage shed was partially destroyed by fire. \ 300 \ 700 \ 100 2 years Calculate the amount and nature of Rod's gain or loss as a result of this casualty.

Free

(Essay)

4.9/5

(67)

Question 1

Correct Answer:

Verified

$200 loss.The loss is a Section 1231 loss which is treated as an ordinary (not capital)loss.The basis of the shed is adjusted to $400 ($700 − $300).

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

Free

(True/False)

4.8/5

(75)

Question 2

Correct Answer:

Verified

True

On October 21, 2018, 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, 2017 with a cost basis of $500,000. a.Calculate Jay's total depreciation deduction for the buildings for 2018, using MACRS. b.Calculate Jay's total depreciation deduction for the commercial building for 2019, using MACRS.

Free

(Essay)

4.7/5

(76)

Question 3

Correct Answer:

Verified

a.
$\begin{array}{llcc} \text { Commercial (nonresidential) $( \$ 700,000 \times 0.535 \% )$ } & \$3,745 \\ \text {Residential $( \$ 500,000 \times 3.636 \% )$ } &\underline{18,180}\\ \text {Total depreciation } &\underline{\$21,925}\\\end{array}$

b.
$\begin{array}{llcc} \text { Commercial $( \$ 700,000 \times 2.564 \% )$ } & \underline{\$17,948} \\\end{array}$

An asset is placed in service on May 15, 2018 and has a depreciable basis of $40,000.The asset is in the 7-year recovery class and the half-year convention applies.What is the maximum depreciation deduction that may be claimed for 2018, excluding the election to expense and bonus depreciation?

(Multiple Choice)

4.7/5

(81)

Question 4

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

(True/False)

4.8/5

(72)

Question 5

Patrick purchased a used passenger automobile on June 1, 2018.He paid $19,000 for the automobile.During 2018, he uses the automobile 75 percent of the time for business.Patrick wishes to claim the maximum amount of depreciation possible (no bonus depreciation or election to expense). a.Calculate Patrick's depreciation expense on the automobile for 2018. b.Calculate Patrick's depreciation expense on the automobile for 2019, assuming the same 75 percent business use.

(Essay)

4.8/5

(74)

Question 6

On January 1, 2018, 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)

4.9/5

(76)

Question 7

Perry acquired raw land as an investment 16 years ago.The land cost $50,000.In the current year, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000.Assume that Perry uses the installment method to recognize the gain and receives only the $10,000 down payment in the year of sale.How much gain should Perry recognize in the current year?

(Multiple Choice)

4.7/5

(74)

Question 8

If insurance proceeds exceed the taxpayer's basis in property destroyed by fire and the proceeds are not invested in similar property, the taxpayer may be required to recognize a gain.

(True/False)

5.0/5

(89)

Question 9

An asset (not an automobile)placed in service in June 2018 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 2018 assuming the business earned taxable income of $1,000,000 before deducting any cost recovery?

(Multiple Choice)

4.8/5

(82)

Question 10

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no election to expense and no income limitation, what is the amount of total cost recovery deduction?

(Multiple Choice)

4.7/5

(82)

Question 11

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

(True/False)

5.0/5

(87)

Question 12

The condemnation of property is not an involuntary conversion, since it is done pursuant to a government decree.

(True/False)

4.8/5

(82)

Question 13

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

(True/False)

4.9/5

(72)

Question 14

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no immediate expensing, what is the amount of bonus depreciation?

(Multiple Choice)

4.8/5

(68)

Question 15

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. Calcul ate $M \& N$ Milling's 1. Realized gain on the exchange. $\quad$ $\quad$ $\$$ _ 2. Recognized gain on the exchange. $\quad$ $\$$ _ b. Calculate the adjusted basis of the newer machine. $\quad$ $\$$ ____

(Essay)

4.8/5

(80)

Question 16

On June 1, 2018, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business.The auto, with a cost basis of $22,000, has a 5-year recovery period..How much depreciation should be taken for 2018, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

(Multiple Choice)

4.8/5

(67)

Question 17

Joseph exchanged land (tax basis of $34,000), that he had held for 4 years as an investment, for similar land valued at $42,000 which was owned by Adrian.In connection with this transaction, Adrian assumed Joseph's $11,000 mortgage.As a result of this transaction Joseph should report a long-term capital gain of:

(Multiple Choice)

4.8/5

(73)

Question 18

On June 1, 2018, Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business.The automobile is in the 5 year cost recovery class and has a basis for depreciation of $60,000.Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation, what is the total tax depreciation deduction for the 2018 calendar tax year (Year 1)?

(Multiple Choice)

4.9/5

(66)

Question 19

None of the aboveIn the current year, Keyaki Construction Company exchanged a building, which cost $530,000 and had accumulated depreciation of $160,000, for a new building having a fair market value of $650,000.In connection with the exchange, Keyaki paid $280,000 in cash.What is the tax basis of the new building?

(Multiple Choice)

4.8/5

(95)

Question 20

Showing 1 - 20 of 122

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

An asset is placed in service on May 15, 2018 and has a depreciable basis of $40,000.The asset is in the 7-year recovery class and the half-year convention applies.What is the maximum depreciation deduction that may be claimed for 2018, excluding the election to expense and bonus depreciation?

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

On January 1, 2018, 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?

If insurance proceeds exceed the taxpayer's basis in property destroyed by fire and the proceeds are not invested in similar property, the taxpayer may be required to recognize a gain.

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no election to expense and no income limitation, what is the amount of total cost recovery deduction?

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

The condemnation of property is not an involuntary conversion, since it is done pursuant to a government decree.

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

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no immediate expensing, what is the amount of bonus depreciation?

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Accounting Methods and Taxes

Tax Credits

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 8: Depreciation and Sale of Business Property

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

An asset is placed in service on May 15, 2018 and has a depreciable basis of $40,000.The asset is in the 7-year recovery class and the half-year convention applies.What is the maximum depreciation deduction that may be claimed for 2018, excluding the election to expense and bonus depreciation?

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

On January 1, 2018, 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?

If insurance proceeds exceed the taxpayer's basis in property destroyed by fire and the proceeds are not invested in similar property, the taxpayer may be required to recognize a gain.

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no election to expense and no income limitation, what is the amount of total cost recovery deduction?

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

The condemnation of property is not an involuntary conversion, since it is done pursuant to a government decree.

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

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, no immediate expensing, what is the amount of bonus depreciation?

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Accounting Methods and Taxes

Tax Credits

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

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