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Exam 8: Depreciation and Sale of Business Property

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Question 41

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Tim sells land to Brad for $90,000. Tim originally purchased the land for $50,000. Brad agrees to pay Tim six annual installments of $15,000 each. In year three, Brad makes his third installment of $15,000. How much taxable gain will Tim recognize in year three?

A) $5,000
B) $6,667
C) $13,333
D) $15,000
E) All the taxable gain should be recognized in year one.

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Question 42

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Assuming a taxpayer has no other gains or losses for the year, a loss from the theft of a Section 1231 asset is treated as a capital loss.

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Question 43

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On January 1, 2019, Sandy, a sole proprietor, purchased for use in her business a used production machine (7-year property) at a cost of $4,000. Sandy does not purchase any other property during 2019 and has net income from her business of $80,000. If the standard recovery period table would allow $572 of depreciation expense on the $4,000 of equipment purchased in 2019, what is Sandy's maximum depreciation deduction including the Section 179 election to expense (but not bonus depreciation) for 2019?

Section 197 intangibles:

What is the maximum depreciation expense deduction for Year 2 (2020) for a passenger automobile, used 100 percent for qualified business use, placed in service on June 15, 2019 and costing $16,000 (the election to expense is not made and no bonus depreciation was taken) ?

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2019 is:

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?

John purchases residential rental property on June 30, 2019 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2019?

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

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

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, bonus depreciation, and taxable income before cost recovery of $5,000, what is the amount of cost recovery in 2019?

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

Lorreta has a manufacturing business. In the current year, her storage building is completely destroyed by fire and she receives $315,000 from her insurance company. She purchased the building for $300,000 20 years ago and has claimed depreciation of $85,000 using the straight-line method. In the following year, she purchases a new storage building at a cost of $295,000. a.Calculate Lorreta's realized gain or loss. b.Assuming Lorreta makes an election under the involuntary conversion provision, calculate Lorreta's recognized gain or loss? c.Assuming Lorreta makes an election under the involuntary conversion provision, what is Lorreta's basis in the new building?

Bonus depreciation in 2019 generally permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

An asset (not an automobile) put in service in June 2019 has a depreciable basis of $535,000 and a recovery period of 5 years. Assuming bonus depreciation is used, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2019?

Taxpayers may expense the cost of depreciable personal property placed in service during the year and used in a trade or business in an amount up to a maximum of $2,550,000 annually.

On June 1, 2019, 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 2019 calendar tax year (Year 1) ?

Automobiles generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Routine maintenance costs for capital assets are deducted in the year the amount is paid or incurred, not capitalized as an improvement to the asset.

A net long-term gain from the theft of a Section 1231 asset is treated as a Section 1231 gain.