Indicate whether the following statements are "True" or "False" regarding cost recovery for tax purposes.
a. Realty (real property) generally includes land and buildings permanently affixed to land
b. Personal use property is only personalty property (personal property) that is held for personal use rather than for use in a trade or business or an income-producing activity
c. Assets used in a trade or business or for the production of income are eligible for cost recovery if they are subject to wear and tear, decay or decline from natural causes, or obsolescence
d. The key date for the commencement of depreciation is the date an asset is purchased
e. The basis of cost recovery property is reduced by the cost recovery method allowed, and not less than the allowable amount
f. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, the property is treated as though it were disposed of at the midpoint of the quarter
g. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, no cost recovery deduction is allowed in the year of sale
h. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, one-quarter of the annual cost recovery deduction is allowed in the year of sale
Indicate whether the following statements are "True" or "False" regarding cost recovery for tax purposes.
a. Realty (real property) generally includes land and buildings permanently affixed to land
b. Personal use property is only personalty property (personal property) that is held for personal use rather than for use in a trade or business or an income-producing activity
c. Assets used in a trade or business or for the production of income are eligible for cost recovery if they are subject to wear and tear, decay or decline from natural causes, or obsolescence
d. The key date for the commencement of depreciation is the date an asset is purchased
e. The basis of cost recovery property is reduced by the cost recovery method allowed, and not less than the allowable amount
f. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, the property is treated as though it were disposed of at the midpoint of the quarter
g. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, no cost recovery deduction is allowed in the year of sale
h. If the mid-quarter convention applies in the computation of cost recovery in the year of sale of an asset, one-quarter of the annual cost recovery deduction is allowed in the year of sale
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Multiple Choice:
_____For purposes of calculating depreciation on the taxpayersbusiness usage of his home, the depreciable basis of the officeis:
The allocable share (example - square footage) of the adjustedbasis of the home when he converted the room from personal space toan office for business use.
The allocable share of the fair market value of the home at thetime he converted the room to an office space for business.
The lesser of a. or b.
The greater of a. or b.
____ Which of the following is not included inthe taxpayerâs basis of business property?
Sales taxes paid with the purchase
Title insurance paid with the purchase
Amounts paid to have the property installed
Amounts paid to have the property delivered
All of the above are included in the taxpayerâs basis.
____ A taxpayer has a net short term capital lossof $2,000 and a net long term capital loss of $3,000 for the taxyear. If there are no other gains or losses, what, if anything,carries over to the next year?
$2,000 short term capital loss
$2,000 long term capital loss
$2,000 short term capital loss; $3,000 long term capitalloss
$500 short term capital loss; $1,500 long term capital loss
The taxpayer has no capital loss carryover.
_____ A taxpayer purchased a capital asset on March 22, 2015.What is the earliest date that he can dispose of the asset wherethe sale qualifies for long term capital gains/loss treatment?
September 22, 2015
September 23, 2015
March 22, 2016
March 23, 2016
_____ A married couple sells the following capital assets duringthe year:
Date Acquired | Date Sold | Sales Price | Adjusted Basis | |
The coupleâs net capital gain is:
$4,000
$12,000
$5,000
$11,000
None of the above
_____ Land purchased for $80,000 in 2000 and used in thetaxpayers business is sold in 2015 for $87,000. The sale of theland results in:
$7,000 short term capital gain
$7,000 long term capital gain
$7,000 ordinary income
$7,000 section 1231 gain
None of the above
_____ Taxpayer purchased office equipment for $9,000. Theequipment had been depreciated $5,000. It was sold for $7,500. Whatis the amount and nature of the gain/loss from the sale?
$1,500 ordinary loss
$1,500 capital loss
$3,500 ordinary income
$3,500 long term capital gain.
_____ Taxpayer has a plant where she acquired a machine for$14,000. Over time depreciation of $6,000 was claimed. In thecurrent year taxpayer sells the asset for $19,000. What is theamount and nature of the gain/loss from the sale?
$6,000 of ordinary income, $5,000 long term capital gain
$5,000 of long term capital gain, $5,000 of ordinary income
$11,000 ordinary income.
$11,000 long term capital gain
______ Equipment used in the business is purchased in 2012 for$50,000. It was sold in 2015 for $22,000.
Depreciation information is as follows:
Accelerated depreciation claimed $23,758
Straight line Depreciation would have been$21,500
What is the gain or loss on the sale of the equipment, and howwill it be treated for tax purposes?
$4,242 Section 1231 loss
$1,758 Section 1231 loss
$2,258 ordinary loss; $1,984 Section 1231 loss
$4,242 ordinary loss
$6,500 ordinary loss
_____ In Malat v Riddell, 383 U.S. 569, 86 S.Ct. 1030,which of the following statements is accurate:
The Supreme Court sustained the governmentâs position, holdingthat the property was held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business.
The Supreme Court held that the sale of âproperty held by thetaxpayer primarily for sale to customers in the ordinary course ofa trade or business is synonymous with the wordâsubstantiallyâ.
Words of the statutes should be interpreted where possible intheir ordinary, everyday senses. The Supreme Court concluded thatas used in Section 122191), âprimarilyâ means âof first importanceâor âprincipallyâ.
In so concluding as it did, the Supreme Court found itunnecessary to remand the case back to the lower court.
During the current year, Marlene, Nancy and Olive formed a new SCorporation. Solely in exchange for stock, Marlene and Nancycontributed appreciated property, while Olive contributed services.The exchanges of Marlene and Nancy will be nontaxable if:
Olive receives 30% of the stock | ||
Olive receives 80% of the stock | ||
Olive receives 15% of the stock | ||
Marlene and Nancy together receive 50% of the stock |
In June of 2018, Alice acquired heronly machine for $30,000 to use in her business. The machine isclassified as 5-year property. Aliceâs maximum depreciation(including bonus) on the machine this year is:
$30,000 | ||
$12,000 | ||
$6,000 | ||
$18,000 |
Cactus Corporation, an S Corporation, had accumulated earningsand profits of $200,000 at the beginning of the tax year. Tex andShirley each own 50% of the stock. During the current year Cactushad $100,000 of ordinary income and distributed $10,000 to Tex and$10,000 to Shirley. What is Tex's taxable income for the currentyear?
$10,000 | ||
$0 | ||
$100,000 | ||
$50,000 |
Bristol Corporation was formed as an S Corporation on January 1,2014 and elected S corporation status at that date. Bristol has hadthe same 25 shareholders throughout its existence and has one classof stock. Bristol's S election will terminate if it:
10% of the shareholders vote to revoke the election | ||
to purchase 10 shares | ||
Allows a variation in the voting rights of the stock | ||
Increases the number of shareholders to 125 |
On February 10, 2018, Ace Corporation, a new calendar yearcorporation, elected S corporation status and all shareholdersconsented to the election. There was no change in its shareholdersduring the current year. Ace met all eligibility requirements foran S corporation during the preelection portion of the year. Whatis the earliest date on which Ace can be recognized as an Scorporation?
February 10, 2018 | ||
January 1, 2019 | ||
February 10, 2019 | ||
January 1, 2018 |
In March of 2017 Frederick acquired an passenger automobile for$45,000 and used the automobile 85% for business. Themaximum depreciation deduction for 2017 is:
$3,160 | ||
$11,160 | ||
$8,928 | ||
$9,486 |
In August of 2017, Joseph acquires andplaces into services business equipment costing $300,000. Theequipment is classified as 5-year recovery property. No otheracquisitions are made during the year. Joseph elects to expense themaximum amount under Sec. 179. Josephâs total deductions for theyear are
$60,000 | ||
$500,000 | ||
$100,000 | ||
$300,000 |
For the current tax year, VBN, an S Corporation distributes$100,000 to its sole shareholder, Raymond. His basis in the stockwas $140,000 before the distribution. VBN had once been a regular CCorporation and had remaining accumulated earnings and profits(E&P) from those years of $70,000. However, VBN has no balancein its accumulated adjustment account. How should the distributionof $100,000 be handled?
$100,000 as a taxable distribution
$70,000 as a taxable dividend, and $30,000 has a non taxablereturn of capital
$50,000 as a taxable dividend, and $100,000 as a non taxablereturn of capital
$70,000 as a taxable dividend; and $30,000 as a capital gain
Stahl, an individual who owns 100% of Talon, an S corporation,had a basis of $50,000 at the first of the year. During the yearTalon reported the following: Ordinary Loss of $10,000; Municipalinterest income of $8,000, Long term capital gain of $4,000; andLong term capital loss of $9,000. What was Stahl's basis in Talonat year end?
$56,000 | ||
$65,000 | ||
$53,000 | ||
$43,000 |
Gross Receipts of $70,000; Tax Exempt Interest Income of $4,000;Dividends of $10,000; Supplies Expense of $3,000; and UtilitiesExpense of $1,500. What amount is the S Corporation's ordinarytaxable income?
$75,500 | ||
$79,500 | ||
$70,000 | ||
$65,500 |
Bob and Sam each owned 50% of Lostalot, an S Corporation. Bob'sbasis is $30,000 and Sam's basis is $15,000. The corporation hasoperating loss for the current year of $50,000. Howmuch loss can each shareholder deduct in the current year assumingthey materially participate in the business:
Bob: $25,000; Sam: $15,000 | ||
Bob: $0; Sam: $0 | ||
Bob: $25,000; Sam: $25,000 | ||
Bob: $30,000; Sam: $15,000 |
Terra Corporation, a calendar-yeartaxpayer, purchases and places into service in 2017 machinery witha 7-year life that cost $650,000. The mid-quarter convention doesnot apply. Terraâs taxable income for the year before the Sec. 179deduction is $700,000. What is Terraâs total maximum depreciationdeduction related to this property?
$585,718 | ||
$521,345 | ||
$92,885 | ||
$500,000 |
Identify which of the following statements is false.
The PTI (previously taxed income) represents the balance ofundistributed net income which were already taxed. | ||
The AAA balance can be negative, but the shareholder's basis inthe S corporation stock cannot be less than zero. | ||
Tax exempt income increase the AAA and the basis of the Scorporation stock. | ||
An S Corporation may or may not have accumulated Earnings andProfits Elaine owns an unincorporated manufacturing business. In 2017,she purchases and places in service $600,000 of qualifying fiveyear equipment for use in her business. Her taxable income from thebusiness before any section 179 deduction is $100,000. Which of thefollowing statements is true? |
Elaine cannot deduct any Section 179 deduction for 2017 | ||||||||||||||
Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $400,000 carryover to next year. | ||||||||||||||
Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $500,000 carryover to the next year | ||||||||||||||
Elaine can deduct $500,000 as a section 179 deduction in2017 Charles, an individual, owned 100% of the Alpha, an Scorporation. At the first of the year, Charles' basis in Alpha was$25,000. In the current year, Alpha realized ordinary income of$1,000; and a long term capital gain of $3,000. Alpha distributed$25,000 to Charles at the end of the year. What amount of the$25,000 is taxable to Charles?
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