Individual Taxation Paper 8

1

Aviation Corp. manufactures model airplanes for children. During 2012, Aviation purchased $570,000 of production machinery to be used in its business. For 2012, Aviation’s taxable income before any Sec. 179 expense deduction was $405,000. What is the maximum amount of Sec. 179 expense election Aviation will be allowed to deduct for 2012 and the maximum amount of Sec. 179 expense election that can carryover to 2013?
Expense . . . . . Carryover






2

Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?
I. The property must be purchased for use in the taxpayer’s active trade or business.
II. The property must be purchased from an unrelated party.






3

Krol Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on November 1, 2012. The furniture and fixtures cost $56,000 and represented Krol’s only acquisition of depreciable property during the year. Krol did not elect to expense any part of the cost of the property under Sec. 179. What is the amount of Krol Corp.’s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2012?






4

On June 29, 2012, Sullivan purchased and placed into service an apartment building costing $360,000 including $30,000 for the land. What was Sullivan’s MACRS deduction for the apartment building in 2012?






5

Data Corp., a calendar-year corporation, purchased and placed into service used office equipment during October 2012. No other equipment was placed into service during 2012. Under the general MACRS depreciation system, what convention must Data use?






6

Under the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986,






7

With regard to depreciation computations made under the general MACRS method, the half-year convention provides that






8

During August 2012, Roe Corp. purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $600,000. What portion of the cost may Roe elect to treat as a Sec. 179 expense deduction rather than as a capital expenditure?






9

Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 9,000 at a rate of 50.5 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $255 to refund the overpayment to Easel. What amount should be reported in Mel’s gross income for the year?






10

Adams owns a second residence that is used for both personal and rental purposes. During 2012, Adams used the second residence for 50 days and rented the residence for 200 days. Which of the following statements is correct?






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