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Exam 5: Business Deductions

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Question 111

True/False

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A taxpayer must use the alternative depreciation system ADS) to compute depreciation for earnings and profits.

A) True
B) False

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Question 112

Multiple Choice

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George purchases used seven-year class property at a cost of $200,000 on April 20, 2018.Determine George's cost recovery deduction for 2018 for alternative minimum tax purposes, assuming George does not elect § 179 and does not take additional first-year depreciation.

A) $2,500
B) $10,000
C) $14,280
D) $28,580
E) None of the above

F) B) and D)
G) B) and E)

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Question 113

Multiple Choice

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The only asset Bill purchased during 2018 was a new seven-year class asset.The asset, which was listed property, was acquired on June 17 at a cost of $50,000.The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2018.

On March 3, 2018, Sally purchased and placed in service a building costing $12,000,000.The building has 10 floors.The bottom three floors are rented out to businesses.The top seven floors are residential apartments.The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000.Determine Sally's cost recovery for the building in 2018.

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition, if 1) the business is not acquired? and 2) the business is acquired?

Lindsey purchased a uranium interest for $10,000,000 on January 3, 2018, when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine her depletion deduction for 2018.

Assets that do not decline in value on a predictable basis are not eligible for cost recovery under MACRS.

Susan is a sales representative for a U.S.weapons manufacturer.She makes a $100,000 "grease" payment to a U.S.government official associated with a weapons purchase by the U.S.Army.She makes a similar payment to a Saudi Arabian government official associated with a similar sale.Neither of these payments is deductible by Susan's employer.