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Exam 5: Business Deductions

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Question 91

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Land improvements are generally not eligible for cost recovery.

A) True
B) False

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Question 92

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Two-thirds of treble damage payments under the antitrust law are not deductible.

A) True
B) False

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Question 93

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Tan Company acquires a new machine ten-year property) on January 15, 2018, at a cost of $200,000.Tan also acquires another new machine seven-year property) on November 5, 2018, at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2018.

In the current year, Tern, Inc., a calendar year C corporation, has $9 million of adjusted taxable income, $300,000 of business interest income, zero floor plan financing interest, and $3.2 million of business interest expense.Tern has average gross receipts for the prior three-year period of $45 million.Which of the following statements is correct about the treatment of Tern's business interest expense?

All listed property is subject to the substantiation requirements of § 274.

A major objective of MACRS is to:

Briefly describe the charitable contribution deduction rules applicable to C corporations.

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are computed as follows. If Tara sells the machine after three years for $15,000, how much gain should she recognize?

For real property, the ADS convention is the mid-month convention.

On June 1, 2018, Gabriella purchased a computer and peripheral equipment five-year property) for $25,000.She used the assets 40% for business, 50% for the production of income, and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

Heron Corporation, a calendar year C corporation, had an excess charitable contribution for 2017 of $5,000.In 2018, Heron made a further charitable contribution of $20,000.Heron's 2018 deduction is limited to $15,000 10% of taxable income).The 2018 contribution must be applied first against the $15,000 limitation.

On January 15, 2018, Vern purchased the rights to a mineral interest for $3,500,000.At that time it was estimated that the recoverable units would be 500,000.During the year, 40,000 units were mined and 25,000 units were sold for $800,000.Vern incurred expenses during 2018 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2018.

A used $35,000 automobile that is used 100% for business is placed in service in 2018.If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

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).

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

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

Audra acquires the following new five-year class property in 2018: Audra elects § 179 treatment for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra does not claim any available additional first-year depreciation deduction.Determine her total cost recovery deduction including the § 179 deduction) for the year.

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

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

In tax planning for charitable contributions, a current year's contribution might have to be deferred to a later year in order to deduct a contribution carryover amount.