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TAX4001- Laursen Fall2021 Exam 3 Review.
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TAX4001- Laursen Fall2021 Exam 3Review
adjusted basis - ANS-assets initial basis (historical basis) minus accumulated
depreciation
Amortization - ANS-recovering the cost of *intangible assets* over a specific period of
time
Assume Steve owns some mountaineering equipment that he uses personally and
purchased two years ago for $4,000. On March 20, he converts the equipment into
business-use property when the fair market value of the equipment is $5,000. What is
Steve's initial basis in the equipment for business purposes? - ANS-Steve will use the
$4,000 as his initial basis for calculating cost recovery (depreciation) and determining
his adjusted basis when he sells or otherwise disposes of the equipment.
Assume Teton is a corporation and it amortizes the $51,000 of organizational
expenditures remaining after it immediately expenses $2,000 of the costs. If Teton
began business on February 1 of year 1, how much total cost recovery expense for the
organizational expenditures is Teton able to deduct in year 1? How much cost recovery
expense will Teton be able to deduct in year 2? - ANS-53,000 -2,000= 51,000 subject to
amortization
recovery period: 180 months
monthly S-L amort: 283.33
283.33 x 11 (number of months in business)= $3,117
$3,117 + $2,000 = $5,117 total deduction in year 1
Yr 2: 51,000 *3/15 = $3,400
Assume that Steve inherited the stock from his grandfather on January 8 (originally
purchased at $10,000). What is Steve's initial basis if the fair market value is (a)
$15,000 and (b) $8,000 at the time of his grandfather's death? - ANS-a) $15,000
b) $8,000
Steve's holding period is long-term regardless of how long he actually holds the stock
because it is inherited property.
Assume that Steve received 100 shares of FZL stock from his grandfather on January
8. On the date of the gift, the stock was worth $15,000. Steve's grandfather originally
purchased the stock 10 years earlier for $10,000. What is Steve's initial basis in the
, stock? - ANS-Because the stock had appreciated in value while Steve's grandfather
owned it, $10,000.
Assume that Teton sells its warehouse (basis of $275,000) on March 5, 2021 (the year
after Teton buys it). What is Teton's depreciation for the warehouse in the year of
disposition? - ANS-full-year's depreciation: $275,000 × 2.564%* = $7,051
3 (month sold) − .5 = 2.5
$7,051 × 2.5/12 = $1,469
Assume that Teton sold all of its office furniture in year 1 (the year it bought it and
placed it in service). How much depreciation expense can Teton deduct for the office
furniture in year 1? - ANS-*$0*. A business is not allowed to claim any depreciation
expense for assets it acquires and disposes of in the same tax year.
Basis for Gifted Property - ANS-gain basis: donor's basis
loss basis: lesser of donor's basis or FMV on date of the gift
depreciation basis: donor's basis
-note: if sold at a price between donor's basis and FMV on date of gift, *there is no gain
or loss*
Basis for property converted from personal to business use - ANS-Gain basis: original
cost basis as a personal use asset
Loss basis: lesser of the original cost basis or FMV on date of conversion
Depreciation basis: lesser of original cost basis or FMV on date of conversion
Basis in Inherited Property - ANS-FMV at date of death
-deemed long term regardless of how long the inheritor held the property
exception:
inherited less than a year after gifting to the deceased
(FMV at alternative lower valuation date if elected)
Bonus Depreciation - ANS-immediately deduct 100% of acquisition cost of property that:
1. has a depreciation life of 20 yrs or less
2. is computer software
3. is water utility property
4. is Qualified film, television, and live theatrical productions
- automatically taken unless taxpayer opts out when return is filed.
-opt out by each class (ie. 3, 5, and 7 yr assets)
Boot received - ANS-Always triggers gain
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