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Exam 5: Business Deductions

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Question 21

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

A) True
B) False

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Question 22

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How is qualified production activities income (QPAI) calculated?

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QPAI is calculated as follows:...

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Question 23

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The domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying a percentage rate (currently 9%) times adjusted gross income.

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 maximum cost recovery method for all personal property under MACRS is 150% declining balance.

An expense need not be recurring in order to be "ordinary."

Intangible drilling costs must be capitalized and recovered through depletion.

Property used for the production of income is not eligible for § 179 expensing.

The only asset Bill purchased during 2016 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 2016.

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university (a qualified educational organization) . The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

The factor for determining the cost recovery for eligible real estate under MACRS, in the year of disposition, is taken from the month of the disposition.

Which of the following is not a related party for constructive ownership purposes under § 267?

Cora purchased a hotel building on May 17, 2016, for $3,000,000. Determine the cost recovery deduction for 2017.

On January 2, 2016, Fran acquires a business from Chuck. Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill. ​ Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant. The amount of the excess of the purchase price over the identifiable assets was $100,000. What is the amount of the amortization deduction for 2016?

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: ​ The land had been held as an investment and was acquired 4 years ago. Shortly after receipt, the City of Terre Haute sold the land for $210,000. Karen's AGI is $450,000. The allowable charitable contribution deduction this year is:

Tracy invested in the following stocks and bonds during 2016. To finance the investments, she borrowed $100,000 from Swan Bank. Interest expense paid on the loan during 2016 was $5,000. During 2016, Tracy received $1,250 of dividend income from Blue, Inc. and $3,000 of interest income on the municipal bonds. a.​Determine the amount of Tracy's gross income. b.Determine the maximum amount of Tracy's deductible interest expense.

Bhaskar purchased a new factory building and land on September 10, 2016, for $3,700,000. ($500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system (ADS) . Determine the cost recovery deduction for 2017.

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?

James purchased a new business asset (three-year personalty) on July 23, 2016, at a cost of $40,000. James takes additional first-year depreciation but does not elect Section 179 expense on the asset. Determine the cost recovery deduction for 2016.

On July 17, 2016, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2017, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2017.