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Unformatted text preview: AF 450 – Federal Taxation I Dr. Julia M. Camp Solutions to Suggested Problems Chapter 10: 1, 5, 7, 8, 12, 13, 27, 28, 30, 31, 33, 38, 39, 42, 45 I:10-1 a. An automobile that is held for personal use is not eligible for depreciation or amortization. b. Goodwill is a Sec. 197 intangible asset amortizable ratably over a 15-year period beginning with the month of acquisition. c. Since the cost of the customer list represents a Sec. 197 intangible, its cost is amortizable on a ratable basis over a 15-year period beginning with the month of acquisition. d. A patent is amortizable over its legal life of seventeen years since the cost of the patent has a definite and limited life. The patent does not qualify for 15-year amortization under Sec. 197 because it was not acquired in connection with a transaction that involves the acquisition of a trade or business or a substantial portion of a trade or business. e. Land is not eligible for depreciation or amortization. f. A covenant not to compete is a Sec. 197 intangible amortizable ratably over a 15-year period despite the fact that the period under the agreement may be different (e.g., five years). In such case no loss is recognized and the basis of retained Sec. 197 intangibles is increased by the unrecognized loss. pp. I:10-2, I:10-3 and I:10-15. I:10-2 a. Depreciation in 2004 (Year 1) would be $7,145 ($50,000 x 0.1429). Depreciation in 2007 (Year 4) would be $6,245 ($50,000 x 0.1249). The percentages come from Table 1 in Appendix C. b. Depreciation in 2004 (Year 1) would be as follows: Bonus depreciation ($50,000 x 0.50) $25,000 Regular MACRS depreciation ($25,000 x 0.1429) 3,573 Total depreciation in 2004 $28,573 Depreciation in 2007 (Year 4) would be as follows: Regular 2007 MACRS depreciation ($25,000 x 0.1249) $3,123 c. If Robert elects Sec. 179, he would have deducted the entire $50,000 in 2004 as taxpayers are permitted to expense up to $102,000 in 2004. Because he deducted the entire $50,000 in 2004, no depreciation is allowable in 2007. I:10-7 Yes, Depreciation for real estate is computed using tables that follow the mid- month convention, so depreciation is allowed in the year of disposal. The amount of depreciation is computed by taking one-half month for the month the asset is sold plus the number of full months held prior to sale, divided by 12 months. Thus, one-half of a month’s depreciation is allowed in the year of disposal regardless of the day of the month the disposal occurred. For example, if property is disposed of on October 30, the table percentage must be multiplied by the fraction 9.5/12 (nine full months plus one-half month for October). pp. I:10-7 and I:10-8. I:10-8 a. No, the salesman is incorrect. The maximum amount of depreciation, (Sec. 179 and regular MACRS) is limited to $3,060 in 2007 due to the Section 280F luxury auto limits. Even if Sec. 179 is not elected, the regular MACRS depreciation deduction of $9,000 ($45,000 x 20%) would be greater than the maximum luxury car...
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- Spring '08
- Depreciation, Depreciation recapture, tish, regular MACRS depreciation