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Your client is a self-employed attorney who is considering
the purchase of a $65,000 automo – bile chat will be used 80% for business.
a. What depreciation method and recovery period are used
under MACRS for the automobile?
b. How would your answer to Parr a change if your client
were an employee and the automobile was nor required as a condition of
employment?
c. What tax consequences occur in Parr a if the business use
of the automob ile decreases to 50 % or less in a succeeding year? Explain.

On March 1, 2019, Sarah entered into a three – year lease of
an automobile used exclusively in her business. The automobile’s FMV was
$58,500 at the inception of the lease. Sarah made ten monthly lease payments of
$600 each during 2019 . Is Sarah able to avoid the luxury automobile
restrictions on deprecia – tion by leasing instead of purchas ing the auto –
mobile? Explain. (The lease inclusion amount for Sarah ‘s automobile is found
in Table 13 of Appendix C .)

What difference does it make for income tax purposes whether
an intangib le asset is (1) acquired in connection with a business acqu
isition, (2) acquired by the purchase of an individua l asset (e.g., a parent),
or (3) created internally? Explain.

Woburn Corporation uses the calendar year as its tax year.
Woburn purchases and places into service $1.7 million of depreciable property
during 2019:
You are working in Woburn’s tax department and are trying co
decide how to make the Sec. 179 election so as to maximize Wobur n’s 2019
depreciation deduction . What tax issues should you consider for this decision?

Allowed Verstts Allowable Depreciation. Sandy acquired
business machinery (which qualified as 7-year MACRS property ) on July 15,
2016, for $10,000 . In 2016, Sandy claimed a $1,429 regular MACRS depreciation
deduct ion and she elected not co claim Sec. 179 depreciation or bonus
depreciation . Because of her low tax rate in 2017 – 2019, Sandy did nor claim
any depreciation deduction on her tax returns in those years. She sells the
machine on July 1, 2019, for $6,000.
a. What is the adjusted basis of the machine on the sale
date?
b. How much gain or loss is recognized on the sale of the
machine?

Sec. 179 Expensing and MACRS Depreciation. Turner
Corporation uses the calendar year as its tax year. It purchases and places
into service $1.97 million of property during 2019 to use in its business:
What is Turner’s total depreciation deduction for 2019 in
each of the following circumstances? Assume that Turner elects our of bonus
depreciation .
a. Turner does not claim Sec. 179 expensing.
b. Turner claims Sec. 179 expensing for $650,000 of the office
furniture’s cost and $370,000 of the office machinery’s cost.
c. Turner claims Sec. 179 expensing for $600,000 of the
office furniture’s cost and $420,000 of the office machinery’s cost.

MACRS Dispositions. Tampa Corporation sold the following
assets in 2019:
~ The half-year convention was used in the year of
acquisition. Tampa did not claim Sec. 179 expense or bonus depreciation during
the acquisition years.
a. What is the depreciation deduction for each asset in
2019?
b. Compute the gain or loss on each asset sold.

Sec. 179 Expensing Election andMACRS Depreciation . In 2019,
Richmond Corporation purchases and places into service a machine. Richmond
elects Sec. 179 expensing for $1.02 million of its $1.22 million cost. The
machine has a 7-year MACRS recovery period. Assume the half-year convention
applies.
a. What is Richmond’s total depreciation deduction for the
machine for each year of its recovery period if it elects out of bonus
depreciation for 2019?
b. How wou ld your answer to Part a change if Richmond does
not elect out of bonus depreciation for 2019?
c. How would your answers to Parts a and b change if
Richmond sells the machine for $430,000 on January 31, 2021? What is its gain
or loss on the sale?