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depreciation_contributed_property_solution

depreciation_contributed_property_solution - Solution...

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Solution : Depreciation of contributed property Denny was a sole proprietor on May 12, 2008, when he bought used equipment (7-year property) for $1,000 to use in his business. In 2008 and 2009, he used MACRS to depreciate the equipment. Tax year Cost MACRS % Cost recovery 2008 1,000 14.29% 143 2009 1,000 24.49% 245 2010 17.49% 2011 12.49% 2012 8.93% 2013 8.92% 2014 8.93% 2015 4.46% 100.00% 388 On December 31, 2009, the asset had an adjusted basis of $612 ($1,000 – $388) and a fair value of $800. Required : Compute 2010 cost recovery in each of the independent cases. 1. On January 1, 2010, he transferred the equipment to the ABC partnership in exchange for a 50% interest in the partnership. Form 1065: $1,000 x 17.49% (MACRS, year 3) = $175 2. On March 1, 2010, he transferred the equipment to the ABC partnership in exchange for a 50% interest in the partnership. $1,000 x 17.49% (MACRS, year 3) = $175 Schedule C: $175 x 2/12 = $29 Form 1065: $175 x 10/12 = $146 3. On January 1, 2010, he transferred the equipment to the ABC corporation in exchange for a 50% ownership interest in a Sec. 351 tax-free exchange. Form 1120: $1,000 x 17.49% (MACRS, year 3) = $175
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