Exam 8: Depreciation and Sale of Business Property

Aaron has a successful business with $50,000 of income in 2018.He purchased a new 7-year MACRS property with a cost of $7,000.For tax purposes, what is the largest write-off Aaron can obtain in 2018 for the new asset?

Give the depreciable or amortizable lives for 2018 tax purposes for these assets:AutomobilesBusiness furnitureComputersResidential real estateCommercial real estateLandPurchased goodwill

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

Simon sold investment property 2 years ago for $750.Simon's basis in the property was $200.Simon is receiving $150 per year from the buyer.Simon reports this income on the installment method.If Simon collects $150 in principal during the current year, how much gain should he report from the sale for the year?

On August 1, 2018, David purchased manufacturing equipment for use in his business.The equipment cost $14,000 and has an estimated useful life and MACRS class life of 7 years. a.​Calculate the amount of depreciation on the manufacturing equipment for 2018 using the accelerated MACRS method and no election to expense or use bonus depreciation is made. b.​Calculate the amount of depreciation on the manufacturing equipment for 2018 using the accelerated MACRS method and bonus depreciation used but no election to expense. c.Calculate the amount of depreciation on the manufacturing equipment for 2018 using the straight-line MACRS optional method and no election to expense or use bonus depreciation is made. d.Calculate the amount of depreciation on the manufacturing equipment for 2018 for financial accounting purposes using the straight-line method of depreciation.

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

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 of the following statements is correct with respect to the deferral provisions of the tax law?

If the proceeds from the sale of property will be collected over a period of more than one year, a taxpayer is required to use the installment method.

Max purchases a new auto in 2018 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?

Section 197 intangibles:

In applying the statutory depreciation percentages from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

Which of the following is true of a like-kind exchange:

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year or mid-quarter convention.

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

Choose the correct statement.

Shellie purchased a passenger automobile on March 2, 2018.She paid $65,000 for the automobile and can support business use of 85 percent.Calculate the amount of depreciation on the automobile for 2018 using the accelerated MACRS method (if available), assuming Shellie does not make the election to expense or claim bonus depreciation.

The election to expense is not permitted where listed property does not meet the qualified business use test.

Acquired goodwill is considered to be a Section 197 asset amortized over 15 years for tax purposes.

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.