Question

Hello, all. I'm new to form 4562 and I'm not exactly sure how to determine the life of these properties. I'm just looking to understand what MACRS I use and how I go about determining life of the properties, and where they go in the form. thank you for your help.

Donald an aspiring young developer gets a “small” 100-million-dollar gift from his wildly successful father. Donald wants to shake up the real estate world, so he immediately begins spending. Here are the relevant transactions, all of them occur in 2019.

1. Donald cannot be seen pulling up to a business deal in anything less than his best, so he purchases a Lamborghini Aventador. The price tag is $350,000 and he tells you that it will be 70% business use. He purchases the vehicle on 01/05/2019.
2. Donald sees a new apartment complex for sale in midtown Manhattan and decides he cannot pass it up. The price tag is 40 million of which he believes 20% of the price is based on the land alone. Donald purchases the building and land on 04/01/2019.
3. Wanting to own both residential and commercial property Donald sees a $30 million commercial property up for sale and closes the purchase on 04/15/2019. He figures 10% of the purchase price fairly represents the value of the land.
4. Realizing both properties produce quite a bit of trash, Donald purchases a dump truck for on 05/01/2019 for $100,000 to haul the trash away. Donald can be seen in such an ugly truck so it will be solely used for business.

Donald comes to you because he knows you are “the best, very smart, and most excellent tax accountant around.” He says can I just expense all of these purchases this year? Will you help me fill out my Form 4562? He says, “I don’t want you to see the rest of my tax return, so this is the only form you need to worry about.” You advise him that you will elect the most aggressive deprecation methods available to save him the most money in the long run. Please compete Donald’s 4562 and provide a brief explanation for each purchase and how you reached your decision.

Donald has very little patience and would like an answer before the weekend is over.

Answer 1

1. You can claim expense in relation to business as allowable expenditure , while personal expenditure is not allowable expenditure.

2. For example, in case of car you purchased is partly for business expenditure and partly for personal use. So those usage (70%) which related to business only can be claimed as expenses.

3. The purchase of car, land & building are of capital in nature only depreciation can be claimed of such expenses at the rate specified in the tax laws.

4. However, depreciation on land cannot be claimed because land is not a depreciable asset

5.So, there should be a proper bifurcation between business and personal usage of assets to provide for expenses and the assesses should be able to demonstrate the same to the authorities if required