Question: Taxpayers elect into Section 179 and elect out of Bonus depreciation.
Answer Choices:\n\n• True • False
Answer:\nTrue
Question: Dexter Inc. purchased equipment three years ago for $125,000 and has taken $77,000 of depreciation expense. Dexter sells the equipment for $90,000. Which of the following is true?
Answer Choices:\n\n• a. Dexter has §1231 long-term capital gain income of $42,000 • b. Dexter has §1245 ordinary income of $77,000 • c. Dexter has §1231 long-term capital gain income of $48,000 • d. Dexter has §1245 ordinary income of $42,000
Answer:\nd. Dexter has §1245 ordinary income of $42,000
Question: In a transaction qualifying for like-kind exchange treatment, if cash boot is paid by the taxpayer, the result will be an adjustment to the basis in the asset received.
Answer Choices:\n\n• True • False
Answer:\nTrue
Question: On September 1 of the current year, Axel began a sole proprietorship and uses the cash method of accounting. Axel took out a loan from Alerus Financial, of which 60% was for business purposes. Axel’s business made the following expenditures: Insurance expense – liability insurance for 1 year ($250 per month) = $3,000 24 month building lease ($5,000 per month) = $120,000 Employee wages = $45,000 Building utilities = $8,000 Alerus interest expense = $2,000 Term life insurance premiums on Axel’s life ($750 per month) = $9,000 Paid OSHA Fine = $10,000 If Axel generated $190,000 in gross receipts under the cash method, calculate Axel’s tentative profit or loss.
Answer Choices:\n\n• a. $102,800 • b. $109,800 • c. $112,800 • d. ($7,000)
Answer:\nc. $112,800
Question: Shell Corp began business operations on February 1 of the current year and generated gross receipts of $29 million as of December 31, its calendar year-end. Which of the following statements is correct?
Answer Choices:\n\n• a. Shell has average gross receipts of $29 million and is considered a small business. • b. Shell has average gross receipts of $31.6 million and is not considered a small business. • c. Shell has average gross receipts of $348 million and is not considered a small business. • d. None of the above.
Answer:\nb. Shell has average gross receipts of $31.6 million and is not considered a small business.
Question: Helix LLC purchased a luxury automobile for $80,000 on January 1, 2024. This auto is used 80% for business. Ignoring any §179 or Bonus depreciation, determine Helix’s depreciation deduction for 2024.
Answer Choices:\n\n• a. $16,000 • b. $12,400 • c. $9,920 • d. $12,800
Answer:\nc. $9,920
Question: The business interest expense deduction is limited to the sum of: business interest income and 30% of the adjusted taxable income of the taxpayer for the taxable year.
Answer Choices:\n\n• True • False
Answer:\nTrue
Question: If a business mistakenly claims too little depreciation, the business must only reduce the asset’s basis by the depreciation actually taken rather than by the amount of allowable depreciation.
Answer Choices:\n\n• True • False
Answer:\nFalse
Question: The general rule regarding the basis in the new property received in a like-kind exchange is:
Answer Choices:\n\n• a. The basis is equal to the adjusted basis of the old property. • b. The basis is equal to the fair market value of the new property. • c. The basis is equal to the fair market value of the old property. • d. The basis is equal to the cost basis of the old property.
Answer:\na. The basis is equal to the adjusted basis of the old property.
Question: The depreciation recapture provisions result in changes to both the amount and character of any gain.
Answer Choices:\n\n• True • False
Answer:\nFalse
Question: AJAX owns land for business use that has an adjusted basis of $60,000. AJAX exchanged this parcel of land for some new land that had fair market value of $80,000, and $5,000 cash received in the exchange. This exchange qualifies for like-kind exchange treatment. Determine the amount of AJAX’s deferred gain, if any.
Answer Choices:\n\n• a. $20,000 • b. $25,000 • c. $5,000 • d. $15,000
Answer:\na. $20,000
Question: On October 1, year 1, Harper purchased an office building for $10 million, of which $1 million was allocated to Land. On April 30, year 5, the building was sold for $15 million. What is Harper’s allowable depreciation deduction for year 5?
Answer Choices:\n\n• a. $109,080 • b. $67,305 • c. $95,445 • d. $74,783
Answer:\nb. $67,305