Question: Troy owns 600 of the 1,000

> What is the depreciable basis of an asset? What role does depreciable basis play in determining the annual cost recovery on a depreciable asset?

> What types of capital expenditures are not deductible over time (i.e., their cost is recovered upon disposition of the asset)?

> Which two tests must be met to claim a periodic recovery deduction on a capital expenditure?

> How does the allowable capital recovery period affect the potential return on the investment in an asset?

> Why is the tax benefit rule necessary? That is, which concept drives the need for this construct? Explain.

> How are the costs of intangible assets recovered?

> Which income tax concepts might taxpayers who take depletion deductions be violating?

> How is cost depletion different from percentage depletion?

> Two Sisters is a partnership that owns and operates a farm. During the current year, the partnership raised and harvested hay at a cost of $20,000. It then traded half the hay for quarter horse breeding stock---young horses worth $30,000. Two Sisters fed

> When a taxpayer purchases an automobile for use in a trade or business, what limits are placed on the cost recovery on the automobile?

> Why are restrictions placed on the cost recovery of listed property?

> Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)?

> What is the Alternative Depreciation System? How is it different from a straight-line election under MACRS?

> Why is the calculation of depreciation using MACRS generally considered easier and more efficient than the calculation using the facts and circumstances method?

> What acquisition- and disposition-year conventions are used in MACRS and to what types of property does each of the conventions apply?

> What is the purpose of the acquisition- and disposition-year convention?

> What is the difference between a taxable entity and a conduit entity?

> In general, taxpayers want to depreciate property as rapidly as possible. Under what circumstances might a taxpayer not want to use accelerated depreciation? How can this be done under MACRS?

> Is the Section 179 election to expense an incentive to all businesses to invest in qualifying property?

> Mitch travels extensively in his job as an executive vice president of Arthur Consulting Company. During the current year, he used frequent flier miles that he had obtained during his business travel to take his family on a vacation to Europe. The norm

> Fiona is a professional bass violinist with the St. Paul Symphony Orchestra. In February of the current year, she purchases at auction for $200,000 an eighteenth-century bass violin built by the renowned Asa Santavar. Fiona is thrilled by her acquisiti

> The tax law provides four methods of cost recovery for assets: (1) immediate deduction of the total cost when paid or incurred; (2) deferral of cost until property is sold or otherwise disposed of; (3) deduction based on a percentage of income from the

> Luther, 72, is a lifelong bachelor who has been very successful in his business and investment endeavors. He realizes that he should begin to do some tax planning for his death. Although he intends to leave the bulk of his $200,000,000 estate to the No

> Your client, Dale, is the president and sole stockholder of a steel fabrication company. He has been planning to buy a new piece of equipment for $500,000. He is upset to learn that the $500,000 cost would have to be depreciated over seven years. He c

> Barbara wanted to go into the long-distance trucking business. She bought a used tractor and trailer for $102,000. However, the trailer wasn't suitable for Barbara's needs, so she sold it for $24,000 and purchased the trailer she needed for $30,000. W

> Refer to problem 53. Alex uses the automobile for 3 years and then sells it. During this period, he properly deducts a total of $3,600 in depreciation. What is Alex's gain or loss on the automobile if he sells it for a. $4,000? b. $23,000? c. $9,000?

> Alex begins using his automobile for business purposes in his new job. The automobile cost $25,000 and has a fair market value of $9,000 on the date of conversion to business use. a. What is Alex's initial basis in the automobile? Explain. b. What is A

> Mikel's daughter, Liudmila, is planning to go to law school in the fall. Mikel has promised her that he will pay her tuition, fees, and book costs. Mikel has 1,000 shares of Konrad Corporation stock that he bought four years ago for $50 per share plus

> The controller of Newform Oil Company has come to you for advice. Newform recently cleared a forested area and began drilling an oil well on the site. The well is a gusher, and Newform's geologists estimate that it will produce for at least 10 years. En

> Florence's daughter, Eunice, needs $5,000 to start a business. Florence agrees to give her the money but will have to sell some securities to raise that much cash. Florence has 1,200 shares of Tom Corporation common stock, which is selling for $5 per s

> Quapaw Construction Company enters into an agreement with Paine County to resurface 30 miles of highway. The contract is for $600,000. Quapaw estimates its total cost of the project to be $500,000. During the current year, Quapaw completes 18 miles of

> Stockton pays $10,000 for 1,000 shares of Megacron, Inc., common stock on the day his niece Chama is born. Stockton's plan is to give the stock to Chama when she is ready to go to college. Eighteen years later, Chama is ready to leave for Eastern Priva

> For his birthday, Moose gives his son, Babe, a valuable basketball card. Moose paid $100 for the card 12 years earlier. On Babe's birthday, the card is valued in a basketball card guidebook at $90. What is Babe's basis in the card? Explain. a. Assume

> Calculate the basis for gain and basis for loss and the taxable gain or deductible loss for the following gifts which are received and sold in the current year: Donor's Adjusted Basis $100,000 100,000 100,000 FMV at Time of Gift $400,000 80,000 30,0

> Julia receives 1,000 shares of Cookery Corporation stock from her grandfather as a wedding present. The shares are selling for $24 per share on the date of the gift. Grandfather paid $8,000 for them 4 years earlier. He pays $3,000 in gift tax on the t

> Latham Corporation constructs a new factory building. The materials cost $300,000. Other costs include direct labor of $150,000, workers pension costs of $5,000, architectural fees of $15,000, and depreciation on equipment of $25,000. The land was pur

> Kieu Corporation constructs a new warehouse. It pays $100,000 for materials and $70,000 to the general contractor. Architectural fees total $18,000. The corporation pays $13,000 in interest on its loan to finance construction. The land costs $15,000, a

> ABC Company purchases all the assets of John's Saw Shop. Details on basis and fair market values of John's Saw Shop's assets are as follows: a. What is ABC's basis in the assets purchased if ABC pays $40,000 for them? b. What is ABC's basis in the ass

> Earl purchases all the assets and assumes the liabilities of Buddy's Market Shop. Details concerning the adjusted basis and fair market value of Buddy's assets and liabilities are as follows: Asset Adjusted Basis Fair M

> Hester Corporation purchases a building by giving stock with a fair market value of $30,000 (original cost was $21,000) and borrowing $210,000. Hester pays closing costs of $10,000 on the purchase. For property tax purposes, the land is assessed at $10

> The Prevetti Partnership is engaged in the purchase and management of apartment complexes. The partnership entered into an agreement with Parsnip Development Company on July 1 of the current year to purchase the Perry Apartments. The sales agreement st

> WCM Builders enters into a contract to build a shopping mall in 2017 for $6,000,000. Completion of the mall is expected to take 2 years and cost WCM $3,600,000. Upon signing the contract, WCM receives $600,000. During 2017, WCM incurs costs of $1,200,0

> Nathaniel purchases a house by paying $25,000 in cash and securing a home mortgage for $75,000. He also incurs $3,000 in legal fees, title search, and closing costs. He agrees to pay the property taxes for the entire year ($6,000), even though his shar

> Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1956 Thunderbird for $15,000 from the company. A car like Izzy's Thunderbird generally sells for $28,000. On Decemb

> Fala is the sole shareholder of Campbell Inc. During the current year, Campbell sells Fala land that had a fair market value of $40,000 for $28,000. Campbell has paid $30,000 for the land. What are the tax effects of the sale for Fala and Campbell? W

> On October 1, 2017, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust's adjusted basis in the lot is $20,000. Real estate taxes attributable to the property are $1,000. The city in which the lot is

> Alphonse purchases a store and a warehouse. The asking price includes $150,000 for the store, $50,000 for the warehouse, and $90,000 for the land. Alphonse agrees to this price even though he does not want to buy the warehouse because it does not meet

> Florian Corporation purchases a piece of land for investment purposes on April 1. Florian pays the seller $2,000 cash and agrees to pay the seller $3,000 per year for the next 5 years plus interest at 9% per year on the outstanding balance. As part of

> Erin purchases 2 acres of land in 2017 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10%. In addition, Erin agrees to let the seller store farm equip

> Paula purchases a 40% interest in Dancer Enterprises for $52,000 on January 2, of the current year. Dancer is organized as a partnership and has an income of $50,000 in the current year. Dancer also distributes a total of $15,000 to the partners in the

> Return to the facts of problem 30. Assume that Show Corporation is organized as an S corporation. In its second year of operations, Show has an operating loss of $40,000 and pays out $20,000 in dividends. On December 31, Amos gives a 10% interest in S

> In 2014, Patricia purchases a rental property as an investment at a cost of $60,000. From 2014 through 2017, she takes $7,000 in depreciation on the property. In 2017, Patricia sells the rental property for $80,000, payable $20,000 per year for 4 years

> Barbara is going to purchase a car for $20,000. She has two financing options: She can finance the purchase through the dealer at 1 percent for 48 months, with monthly loan payments of $425, or she can take a $2,000 rebate on the purchase price and fin

> Amos and Thomas form the Show Corporation during the current year. Amos owns 40% of Show's stock, Thomas owns 20%, and Arthur owns the remaining 40%. Amos paid $50,000 for his interest, and Thomas paid $25,000. Amos and Thomas are responsible for Show'

> During the current year, Horace's personal residence is damaged by a tornado. The residence had an adjusted basis of $80,000 before the tornado. The cost of repairing the damage is $30,000. Horace's insurance company reimburses him $22,000 for the rep

> Determine whether each of the following transactions would result in an increase in basis, a decrease in basis, or no effect on basis: a. Dolly pays $3,000 for a survey to disprove her neighbor's claim that the boundaries dividing their properties are in

> Hannibal owns a farm. He purchases a tractor in 2013 at a cost of $25,000. Because 2013 is a bad year, he does not deduct any depreciation on the tractor in 2013. He sells the tractor in 2017 for $16,000. He takes straight-line depreciation on the tr

> Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2010. From 2010 through 2015, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net operating loss and deducts no depreciation in 2016, even

> Luana pays $40 per share for 100 shares of Manano Corporation common stock. At the end of the year, the market price of the stock is $60 per share. During the year, she receives a cash dividend of $4 per share. Manano reports that $3 per share is tax

> Alberta owns 5 acres of land she purchased several years ago for $6,500. A new housing development is being built on the north side of her property. The owner of the development needs part of Alberta's land to run utility and sewer lines to the new dev

> Determine the adjusted basis of each of the following assets: a. André purchased a parcel of land three years ago for $17,000. In the current year, the adjoining property owner sues him, claiming that part of André's property belongs to him under the ri

> Determine the adjusted basis of each of the following assets: a. Leineia purchased an automobile 2 years ago for $30,000. She uses it 75% in her business and 25% for personal use. To date, she has deducted $4,209 in allowable depreciation on the busine

> How is a transaction loss different from an annual loss?

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Woodrow spent $5,380 on trees and shrubs for use in his landscaping business. b. Woodrow spent $12,100 on a new

> Bonnie is married and has 1 child. She owns Bonnie's Rib Joint, which produces a taxable income of approximately $120,000 per year. a. Assume that Bonnie's taxable income is $40,000 without considering the income from the rib joint. How much tax will s

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Reagan gave her mother a new set of golf clubs for Christmas. b. Roberta bought a whistle and uniform for use in

> Lynn bought 100 shares of Filidelphia Corporation stock for $10,000 three years ago. On December 24, she sells 50 shares for $4,000. She plans to buy 100 more shares of Filidelphia stock for $7,000 on January 17. Explain the tax treatment of these trans

> On November 14, 2017, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock 2 years earlier for $10,000. Because the price of the stock continued to drop, Noel purchases additional shares of Marker stock on December 10,

> Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2013. On December 14, 2017, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3, 2018, Eric purchases 500 shares of Razor, Inc., for $3 pe

> Clarece has the option of receiving 2 shares of common stock as a stock dividend on the 10 shares of Ramble Company common stock that she owns. She paid $30 per share for her 10 shares. The common stock is now selling for $20 per share. In lieu of rec

> On September 5 of last year, Edwina purchases 100 shares of Atlantis Corporation common stock for $5,000. In December of the current year, she receives a nontaxable stock dividend of 10 shares of preferred stock from Atlantis. At the date of the divide

> On January 5, 2017, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2017, he purchases an additional 300 shares for $19,500. On November 13, 2017, Wichmann, Inc., declares and distributes a 30% stock dividen

> Phoebe opens a bait delivery service during the current year. In starting up the business, she decides to use her personal truck as a delivery vehicle. She had paid $16,000 for the truck, which was worth $10,000 when she turned it into a delivery truck

> Daryl purchases land in 2013 at a cost of $65,000. In 2017, he sells the land for $100,000. a. How much gain or loss does Daryl realize on the sale of the land? b. Assume that the sales contract on the land calls for the buyer to pay Daryl $40,000 at th

> Alexis purchases a duplex by paying $18,000 cash and assuming the seller's $80,000 mortgage. She pays legal fees of $3,000 and spends $9,000 on painting and carpeting the 2 units before renting out 1 unit and moving into the other (i.e., 1 unit is her p

> Demetri starts a public accounting practice during the current year. He converts 10% of his home into an office. Demetri purchased the property four years ago for $100,000. The portion of the purchase price allocated to the house was $80,000. The hou

> Joe Bob is an employee of Rollo Corporation who receives a salary of $14,000 per month. How much Social Security tax will be withheld from Joe Bob's salary in a. March? b. November?

> Return to the facts in problem 60. Assume that the securities have a fair market value of $2,000. What positive tax strategy exists in this situation? Explain. Data from Problem 60: Phong would like to begin planning her estate. She owns marketable sec

> Phong would like to begin planning her estate. She owns marketable securities that cost $10,000 twelve years ago. The market value is $40,000. She wonders whether she should sell her securities and distribute the proceeds to her son before she dies or j

> Taylor dies on February 19 of the current year. Among the assets in his estate are 500 shares of Dane Company preferred stock. Ten years earlier, Taylor paid $14 per share for the stock. Market values per share for Dane preferred stock on various date

> Jesse's grandfather dies on April 13 of the current year. Jesse inherits the following property: a. What is Jesse's basis in the inherited property? b. What is Jesse's basis in the property if the executor of the estate elects the alternate valuation

> Chanetra inherits land from her aunt, Tameka. Tameka's adjusted basis in the land was $150,000 and the fair market value at the date of her death was $200,000. Six months after Tameka's death, the land is appraised at $225,000. Plans for a nearby shop

> Refer to problem 55. Yohanse used the warehouse for 4 years and sells it. During this period, he properly deducts a total of $25,000 in depreciation. What is Yohanse's gain or loss on the warehouse if he sold it for a. $285,000? b. $215,000? c. $245,00

> Yohanse's aunt Millie gives him a storage warehouse valued at $250,000 to use in his delivery business. The warehouse has been vacant since Millie inherited it from her grandfather several years ago. At that time, the warehouse had a value of $300,000

> How much income would an accrual basis taxpayer report in 2017 in each of the following situations? a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a 1-year contract for $600 and a 2-year contract for $1,080

> Jolene owns a dry-cleaning business. During the current year, a rainstorm causes a roof leak that shorts out a dry-cleaning machine. The cost of repairing the machine is $300, none of which is compensated by Jolene's insurance. The adjusted basis of th

> During the current year, Horace's personal residence is damaged by a tornado. It had an adjusted basis of $40,000 before the tornado. The cost of repairing the damage is $11,000. Horace's insurance company reimburses him $8,000 for the repairs. Horace

> Leineia owns 1,000 shares of Serous Corporation common stock. She paid $26 per share several years ago. On December 31 of the current year, Serous distributes a $5 per share cash dividend. It reports that $3 per share is taxable and $2 is a nontaxable

> The country of Boodang is the leading producer of sausage. Boodang imposes three taxes on its residents and companies to encourage production of sausage and discourage its consumption. Each applies as follows: • Income tax: Rates apply to each taxpayer'

> How is a sales tax different from an excise tax?

> Harry and Freddi, a married couple, purchased 100 shares of Opaque Mutual Fund in 2002 for $2,800 as joint tenants with the right of survivorship. Freddi dies during the current year. Fair market value of the shares is $5,000 on the date of death. Six

> Several years ago, Steve gave his nephew Rashan his coin collection valued at $12,000 with a basis of $3,000. Steve’s intent was to ensure that Rashan has money for college. Rashan is now a senior in high school, and the coins are worth $16,000. Rasha

> The basis of inherited property is generally the fair market value at the date of death. This enables the person who inherits the property to receive a “step-up” in basis. Use the Internet to find discussions related to this “stepped-up” basis.

> In the United States, gifts of property are subject to the gift tax. To avoid double taxation, the income tax excludes the receipt of a gift from taxable income. To ensure that a subsequent sale of gift property does not tax the gift, a basis is assign

> Blair and Britain divorce in the current year. Blair agrees to transfer her interest in their principal residence to Britain. They had purchased the home for $80,000 four years before the divorce. At the time of the divorce, the house is worth $120,00

> Determine the proper year(s) for reporting the income in each of the following cases: a. Lagoon Inc., an accrual basis taxpayer, owns an amusement park. The park is open April through September. In October, Lagoon begins selling discounted season passes

> Are Social Security benefits taxable? Explain.

> Use the RIA Checkpoint database to answer the following questions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most spec

> Use the RIA Checkpoint database to answer the following questions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most spec

> Monica owns 1,400 shares of Northeast Utilities common stock. In August of this year, when its stock was selling for $10 per share, Northeast announced a 20% stock dividend. In lieu of receiving the dividend shares, stockholders have the option of rece