Question

1. On June 1 of the current tax year, Tab converted a machine from personal use to use as rental property. At the time of the conversion, the machine was worth $70,000. Five years ago Tab purchased the machine for $120,000. The machine is subject to a $100,000 mortgage. What is the basis of the machine for depreciation purposes?

a. $70,000 b. $90,000 c. $100,000 d. $120,000 e. $150,000

2. Hazel, a calendar-year taxpayer, purchased a new business asset (five-year depreciation period) on September 30, 2017, at a cost of $200,000, and placed the asset in service on the same day. This was the only asset Hazel placed in service in 2017. Hazel did not elect IRC § 179 expensing or to take additional first-year (“bonus”) depreciation. On August 20, 2019, Hazel sold the asset. Determine the cost recovery deduction for 2019 for the asset so that she can determine her adjusted basis at the time of the sale.

a. $8,000 b. $11,875 c. $19,000 d. $9,600 e. $19,200

3. Cora, a calendar-year taxpayer, purchased an apartment building on May 17, 2017, for $2,000,000, and continued to operate it with the existing tenants. Determine the cost recovery deduction for 2019.

a. $48,150 b. $59,520 c. $72,720 d. $76,920 e. $109,080

4. The only depreciable asset Bill purchased during his calendar 2018 tax year was a new seven-year-life asset. The asset, which was listed property, was acquired on June 17 at a cost of $100,000, and he placed it in service immediately. The asset was used 60% for business and the rest of the time for personal use. Bill did not elect IRC § 179 expensing or to take additional first-year (“bonus”) depreciation. Determine Bill’s depreciation deduction with respect to the property for 2018.

a. $1,428 b. $2,499 c. $5,716 d. $8,574 e. $50,000

5. Hans, a calendar-year taxpayer, purchased a new passenger automobile on August 17, 2018, for $50,000, and placed it in service immediately. The automobile was the only depreciable asset he placed in service that year. He did not elect IRC § 179 expensing or to take additional first-year (“bonus”) depreciation. During the year the car was used 40% for business and 40% for production of income. Automobiles are 5-year property. Determine his cost recovery deduction for the car for 2018.

a. $4,000 b. $8,000 c. $1,264 d. $2,528 e. $3,160

Answer 1

Question No. - (1) - Answer -

Step - ( 1 ) - Facts of the Question given -

On June 1 of the current tax year, Tab converted a machine from personal use to use as rental property.

At the time of the conversion, the machine was worth $70000.

Five years ago Tab purchased the machine for $120000.

The machine is subject to a $100,000 mortgage.

What is the basis of the machine for depreciation purposes -

• Option - (a) - $70000.
• Option - (b) - $90000.
• Option - (c) - $100000.
• Option - (d) - $120000.
• Option - (e) - $150000.

.

Step - ( 2 ) - Analysis -

​​​​​​​If personal use assets are converted to business, the basis of the assets for depreciation would be -

Lower of -

• The Adjusted basis of assets, or
• The fair market value of assets at the time of conversion.

In the given question, The Adjusted basis of assets is $120000 ( that is the purchased price ) and The fair market value of assets at the time of conversion is $70000.

.

Step - ( 3 ) - Conclusion -

Option - (a) - $70000, is Correct because the basis of the assets for depreciation would be lower of - The Adjusted basis of assets = $120000 ( that is the purchased price ), or The fair market value of assets at the time of conversion = $70000.