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Exam 5: Business Deductions

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Question 41

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The cost of depreciable property is not a research and experimental expenditure.

A) True
B) False

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Question 42

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Goodwill associated with the acquisition of a business cannot be amortized.

A) True
B) False

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Question 43

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Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Which of the following is not a "trade or business" expense?

On June 1 of the current year,Tab converted a machine from personal use to rental property.At the time of the conversion,the machine was worth $90,000.Five years ago Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

George purchases used seven-year class property at a cost of $200,000 on April 20,2015.Determine George's cost recovery deduction for 2015 for alternative minimum tax purposes,assuming George does not elect § 179 and does not take additional first-year depreciation,if available.

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

For a new car that is used predominantly in business,the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

Jacques,who is not a U.S.citizen,makes a contribution to the campaign of a candidate for governor.Cassie,a U.S.citizen,also makes a contribution to the same campaign fund.If contributions by noncitizens are illegal under state law,the contribution by Cassie is deductible,while that by Jacques is not.

MACRS depreciation is used to compute earnings and profits.

Diane purchased a factory building on April 15,1993,for $5,000,000.She sells the factory building on February 2,2015.Determine the cost recovery deduction for the year of the sale.

The limit for the domestic production activities deduction (DPAD)uses all W-2 wages paid to employees by the taxpayer during the tax year.

Olive,Inc. ,an accrual method taxpayer,is a corporation that is equally owned by Maurice and Alex,who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital,the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year,there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective,when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

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?

Discuss the requirements in order for startup expenditures to be amortized under § 195.

If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction because of the taxable income limitation,the product of the amount not allowed multiplied by the DPAD percentage rate (currently 9%)can be carried over for 5 years.

In a farming business,if the uniform capitalization rules are not used,cost is recovered using the ADS straight-line method.

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000,even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

On July 17,2015,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2016,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2016.