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If a used $35,000 automobile used 100% for business in the first year (2013)fails the 50% business usage test in the second year,no cost recovery will be recaptured.

A) True
B) False

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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.

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Maurice and Alex are related parties wit...

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Discuss the difference between the half-year convention and the mid-quarter convention.

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The half-year convention assumes propert...

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Janet purchased a new car on June 5,2013,at a cost of $20,000.She used the car 80% for business and 20% for personal use in 2013.She used the automobile 40% for business and 60% for personal use in 2014.Janet takes additional first-year depreciation.Determine Janet's cost recovery recapture for 2014.


A) $0.
B) $928.
C) $1,008.
D) $7,328.
E) None of the above.

F) All of the above
G) None of the above

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Sid bought a new $1,210,000 seven-year class asset on August 2,2013.On September 12,2013,he purchased $860,000 of used five-year class assets.Sid does take additional first-year depreciation if available.If Sid elects § 179,what is the maximum write-off for these purchases for 2013?

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blured image Using § 179 on the ...

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Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.

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On February 20,2013,Susan paid $200,000 for a leasehold improvement to an office building that she is going to lease to John.The leasehold improvement is not a qualified leasehold improvement.The lease will begin on June 1,2013,and terminate on May 31,2023.At the termination of the lease,the improvement will be worthless.Determine Susan's deductible loss as a result of the termination of the lease.


A) $0.
B) $123,503.
C) $127,990.
D) $128,631.
E) None of the above.

F) B) and C)
G) C) and D)

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During the current year,Kingbird Corporation (a calendar year C corporation) had the following income and expenses: During the current year,Kingbird Corporation (a calendar year C corporation) had the following income and expenses: On October 1,Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items) .Determine Kingbird's charitable contribution deduction for the current year. A) $9,000. B) $7,500. C) $6,650. D) $6,450. E) None of the above. On October 1,Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items) .Determine Kingbird's charitable contribution deduction for the current year.


A) $9,000.
B) $7,500.
C) $6,650.
D) $6,450.
E) None of the above.

F) A) and E)
G) A) and B)

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Tan Company acquires a new machine (ten-year property) on January 15,2013,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2013,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election.Tan elects to not take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2013.


A) $24,000.
B) $25,716.
C) $102,000.
D) $132,858.
E) None of the above.

F) A) and B)
G) A) and C)

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Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

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Because the interest income on municipal...

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On December 27,2013,the board of directors of Taupe Corporation,a calendar year,accrual method C corporation,authorized a contribution of land to a qualified charitable organization.The land (basis of $75,000,fair market value of $125,000)was acquired five years ago and held as an investment.For purposes of the taxable income limitation applicable to charitable deductions,Taupe has taxable income of $800,000 and $950,000 for 2013 and 2014,respectively.Describe the tax consequences to Taupe Corporation under the following independent situations. On December 27,2013,the board of directors of Taupe Corporation,a calendar year,accrual method C corporation,authorized a contribution of land to a qualified charitable organization.The land (basis of $75,000,fair market value of $125,000)was acquired five years ago and held as an investment.For purposes of the taxable income limitation applicable to charitable deductions,Taupe has taxable income of $800,000 and $950,000 for 2013 and 2014,respectively.Describe the tax consequences to Taupe Corporation under the following independent situations. In general,charitable contributions are deductible in the year made.However,in the case of an accrual method corporation,a deduction can be claimed in the current year for a charitable contribution made in the subsequent year if (1)the contribution is approved by the board of directors of the corporation in the current year,and (2)the contribution is made on or before the fifteenth day of the third month of the subsequent year.The land is capital gain property; thus,the amount of the charitable contribution is the land's fair market value of $125,000. In general,charitable contributions are deductible in the year made.However,in the case of an accrual method corporation,a deduction can be claimed in the current year for a charitable contribution made in the subsequent year if (1)the contribution is approved by the board of directors of the corporation in the current year,and (2)the contribution is made on or before the fifteenth day of the third month of the subsequent year.The land is capital gain property; thus,the amount of the charitable contribution is the land's fair market value of $125,000.

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In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?


A) Disallowed loss to James of $2,000; gain to Lance of $1,000.
B) Disallowed loss to Lance of $2,000; gain to James of $3,000.
C) Deductible loss to Lance of $2,000; gain to James of $3,000.
D) Disallowed loss to Lance of $2,000; gain to James of $1,000.
E) None of the above.

F) D) and E)
G) A) and E)

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Augie purchased one new asset during the year (five-year property) on November 10,2013,at a cost of $650,000.She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $600,000.She takes additional first-year depreciation.Determine the total cost recovery deduction with respect to the asset for 2013.


A) $22,500.
B) $154,550.
C) $500,000.
D) $600,700.
E) None of the above.

F) B) and E)
G) A) and B)

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Hippo,Inc.,a calendar year C corporation,manufactures golf gloves.For the current year,Hippo had taxable income (before DPAD) of $900,000,qualified domestic production activities income of $750,000,and W-2 wages related to qualified production activities income of $140,000.Hippo's domestic production activities deduction for the current year is:


A) $0.
B) $12,600.
C) $67,500.
D) $70,000.
E) None of the above.

F) All of the above
G) A) and B)

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Hans purchased a new passenger automobile on August 17,2013,for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2013.


A) $500.
B) $1,000.
C) $1,224.
D) $1,500.
E) None of the above.

F) C) and D)
G) None of the above

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Which of the following statements is correct in connection with the investigation of a business?


A) If the taxpayer is not already engaged in the trade or business,the expenses incurred are deductible if the project is abandoned.
B) If the business is acquired,the expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired.
C) That business must be related to the taxpayer's present business for any expense ever to be deductible.
D) Regardless of whether the taxpayer is already engaged in the trade or business,the expenses must be capitalized and amortized.
E) None of the above.

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

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On June 1,2013,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation.Determine the cost recovery deduction for 2014.


A) $3,160.
B) $3,290.
C) $3,570.
D) $6,720.
E) None of the above.

F) All of the above
G) C) and D)

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Which of the following is a required test for the deduction of a business expense?


A) Ordinary.
B) Necessary.
C) Reasonable.
D) All of the above.
E) None of the above.

F) None of the above
G) C) and D)

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The only asset Bill purchased during 2013 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 2013.


A) $1,428.
B) $2,499.
C) $26,749.
D) $33,375.
E) None of the above.

F) B) and D)
G) A) and B)

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On June 1,2013,Red Corporation purchased an existing business.With respect to the acquired assets of the business,Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2013 for the patent.


A) $0.
B) $1,667.
C) $11,667.
D) $35,000.
E) None of the above.

F) A) and E)
G) A) and D)

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