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Discuss the following cost recovery questions: Whether pro

1. Discuss the following cost recovery questions:

Whether property that is classified as personal is subject to cost recovery.

If a taxpayer does not take any cost recovery on an asset during the year, what will be the impact on the basis of the asset?

The computation of cost recovery in the year an asset is placed in service when the half-year convention is used.

Whether the acquisition of real property affects the 40% test to determine whether the mid-quarter convention must be used.

2. Discuss the following cost recovery questions:

The definition of taxable income as it is used in limiting the Section 179 expensing amount.

The implications of an automobile used in a trade-or-business having a gross vehicle weight exceeding 6,000 pounds.

The purpose of the lease inclusion amount and explain how it is determined with respect to leased passenger automobiles.

The amortization period of a Section 197 intangible if the actual useful life is less than 15 years.

3. Lyle and Joan are married and file a joint return for the year. Both incur work-related expenses that are not reimbursed. If Lyle is employed and Joan is self-employed, how should the expenses be handled for tax purposes?

4. In connection with the office in the home deduction, comment on the following factors:

Taxpayer claims the standard deduction

The office is also used to pay personal bills

The expenses exceed the income from the business

Taxpayer rents rather than owns, the home

5. Comment on the deductibility of each of the following items;

Expenses incurred by taxpayer, a member of the New Mexico National Guard, to participate in a three-day training session conducted in Texas.

Dues to a teamster's union paid by a truck driver

Computer supplies purchased by a college professor for use in the graduate seminars she teaches

Fee paid to take the state bar exam. Taxpayer is employed as a paralegal by a law firm.

Solution Preview

Whether property that is classified as personal is subject to cost recovery.
Property that is classified as personal is subject to cost recovery if it is used in a trade or business, or in an income producing activity. If it is not, it does not qualify for cost recovery.

If a taxpayer does not take any cost recovery on an asset during the year, what will be the impact on the basis of the asset?
If a taxpayer does not take any cost recovery on an asset during the year, the basis of the asset must be reduced by the amount of the cost recovery that should have been taken.

The computation of cost recovery in the year an asset is placed in service when the half-year convention is used.
The computation of cost recovery in the year an asset is placed in service when the half-year convention is used is as follows - the asset is treated as if it were sold in the middle of the year, so one-half year of cost recovery is allowed for the year in which the asset is sold.

Whether the acquisition of real property affects the 40% test to determine whether the mid-quarter convention must be used.
Real property does not qualify for the 40% test to determine whether the mid-quarter convention must be used.

The definition of taxable income as it is used in limiting the Section 179 expensing amount.
For Section 179 purposes, taxable income is the aggregate amount of taxable income of any trade or business activity ...

Solution Summary

Discuss the following cost recovery questions:

Whether property that is classified as personal is subject to cost recovery.

If a taxpayer does not take any cost recovery on an asset during the year, what will be the impact on the basis of the asset?

The computation of cost recovery in the year an asset is placed in service when the half-year convention is used.

Whether the acquisition of real property affects the 40% test to determine whether the mid-quarter convention must be used.

2. Discuss the following cost recovery questions:

The definition of taxable income as it is used in limiting the Section 179 expensing amount.

The implications of an automobile used in a trade-or-business having a gross vehicle weight exceeding 6,000 pounds.

The purpose of the lease inclusion amount and explain how it is determined with respect to leased passenger automobiles.

The amortization period of a Section 197 intangible if the actual useful life is less than 15 years.

3. Lyle and Joan are married and file a joint return for the year. Both incur work-related expenses that are not reimbursed. If Lyle is employed and Joan is self-employed, how should the expenses be handled for tax purposes?

4. In connection with the office in the home deduction, comment on the following factors:

Taxpayer claims the standard deduction

The office is also used to pay personal bills

The expenses exceed the income from the business

Taxpayer rents rather than owns, the home

5. Comment on the deductibility of each of the following items;

Expenses incurred by taxpayer, a member of the New Mexico National Guard, to participate in a three-day training session conducted in Texas.

Dues to a teamster's union paid by a truck driver

Computer supplies purchased by a college professor for use in the graduate seminars she teaches

Fee paid to take the state bar exam. Taxpayer is employed as a paralegal by a law firm.

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