DennisSolutionsCh6 - Chapter 6 Property Acquisitions and...

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Chapter 6: Property Acquisitions and Cost Recovery Deductions 109 Solutions to Chapter 6 Problem Assignments Note: Revised Limits for Passenger Vehicles for 2004 Shortly after this text went to print, the IRS released Revenue Procedure 2004-20, 2004-13 IRB 642, revising the ceiling limits for automobiles and trucks by reducing the limits $100 for each year; the lease inclusion amounts were also revised. These revised limits are used in the solutions for the problems in this chapter. Revised Tables 6.8, 6.9, and 6.10 (to update those on textbook pages 217-218) are presented below. Revised Table 6.8 Ceiling Limits on Automobiles Placed in Service in 2004 Year Without Bonus Depreciation With 50% Bonus Depreciation 1 $2,960 $10,610 2 4,800 4,800 3 2,850 2,850 4 and thereafter 1,675 1,675 Note: All limits assume 100% business use. Limits must be reduced by any personal use. Revised Table 6.9 Ceiling Limits on Trucks and Vans Placed in Service in 2004 Year Without Bonus Depreciation With 50% Bonus Depreciation 1 $3,260 $10,910 2 5,300 5,300 3 3,150 3,150 4 and thereafter 1,875 1,875 Revised Table 6.10 Lease Inclusion Amounts for Automobiles Leased in 2004 Fair Market Value of Auto Year 1 Year 2 Year 3 Year 4 Year 5 and Later Years Up to $17,500 0 0 0 0 0 $17,500-$18,000 $11 $23 $33 $42 $48 $18,001-$18,500 13 26 40 49 56 $18,501-$19,000 14 31 46 55 65 $19,001-$19,500 16 35 51 63 73 $19,501-$20,000 18 39 57 70 81 $24,001-$25,000 35 77 114 137 159 $29,001-$30,000 54 116 174 208 242 $39,001-$40,000 90 197 292 351 405 $44,001-$45,000 108 237 351 422 488 $49,001-$50,000 126 277 411 493 570 $59,001-$60,000 163 357 529 636 734 $78,000-$80,000 234 513 760 914 1,055 $85,001-$90,000 265 580 862 1,035 1,194 $95,001-$100,000 301 661 980 1,177 1,359
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110 Solutions Manual for Taxation for Decision Makers Check Your Understanding 1. Basis Linda inherited a car from her Uncle Ted. Ted purchased the car two years ago for $38,000. The car had a value of $30,000 at the date of Ted’s death. What is Linda's basis for the car? Solution: Linda’s basis is $30,000, the fair market value at the date of death. 2. Depreciation Cynthia, a sole proprietor, has incurred a loss this year and would like to claim no depreciation this year and then take double depreciation next year. Can she elect to do this? Solution: No, depreciation must be taken in the year to which it is allocated; if not taken, basis is still reduced for the allowable depreciation. 3. Section 179 Expensing What limits are placed on the amount and type of property that can be expensed under Section 179? Solution: Only tangible business personalty is eligible for Section 179 expensing. There is also an annual limit on expensing. For 2004 the limit is $102,000. The amount is also limited to the amount of taxable income for the year and the limit must be reduced for qualifying investments that exceed $410,000 in a single year. 4. Averaging Conventions What averaging conventions exist under MACRS? How does a taxpayer determine which averaging convention should be used? Solution: There are two averaging conventions, the half-year and the mid-quarter, which are used for personalty (5-year and 7-year property). A mid-month convention is used for all realty (27½-year and 39-year property).
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