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Exam 5: Business Deductions

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Question 51

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For a taxpayer who is engaged in a trade or business, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

A) True
B) False

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Question 52

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If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

A) True
B) False

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Question 53

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

Howard's business is raising and harvesting peaches. On March 10, 2016, Howard purchased 10,000 new peach trees at a cost of $60,000. Howard does not make an election to expense assets under § 179 and does not take additional first-year depreciation (if available) . Determine the cost recovery deduction for 2016.

Norm purchases a new sports utility vehicle (SUV) on October 12, 2016, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2016. Compute the maximum deduction with respect to the SUV for 2016. Norm does not take additional first-year depreciation (if available).

During the current year, Owl Corporation (a C corporation) , a retailer of children's apparel, made the following donations to qualified charitable organizations. ​ How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation) ?

In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity. The museum included the painting in its permanent collection. Oriole Corporation purchased the painting 5 years ago for $10,000. Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

During the current year, Ralph made the following contributions to the University of Oregon (a qualified charitable organization) : Ralph acquired the stock in Raptor, Inc., as an investment fourteen months ago at a cost of $42,000. Ralph's AGI for the year is $189,000. What is Ralph's charitable contribution deduction for the current year?

Discuss the reason for the inclusion amount with respect to leased automobiles.

Antiques may be eligible for cost recovery if they are used in a trade or business.

Joe purchased a new five-year class asset on June 1, 2016. The asset is listed property (not an automobile). It was used 55% for business and 45% for the production of income. The asset cost $1,000,000. Joe made the § 179 election. Joe's taxable income would not create a limitation for purposes of the § 179 deduction. Joe does not take additional first-year depreciation (if available). Determine Joe's total cost recovery (including the § 179 deduction) for the year.

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.

If an automobile is placed in service in 2016, the limitation for cost recovery in 2018 will be based on the cost recovery limits for the year 2016.

Can a trade or business expense be deductible if it is necessary but not ordinary?

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

On August 20, 2016, May placed in service a building for her business. On November 28, 2016, May paid $80,000 for improvements to the building. What is May's cost recovery deduction for the building improvements in 2016?

Briefly discuss the disallowance of deductions for capital expenditures.

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

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation?