Question 1. Norm purchases a new sports utility vehicle (SUV) on O

1. Norm purchases a new sports utility vehicle (SUV) on October 12, 2014, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2014. Compute the maximum deduction with respect to the SUV for 2014. Norm does take additional first- year depreciation (if available).

2. On June 1, 2014, Gabriella purchased a computer and peripheral equipment (five-year property) for $25,000. She used the assets 40% for business, 50% for the production of income, and 10% for personal use. These are the only assets Gabriella purchased during the current year. Determine her total cost recovery deduction for the current year.

3. In 2014, Marci is considering starting a new business. Marci had the following costs associated with this venture:

Marci started the new business on January 5, 2015. Determine the deduction for Marci’s startup costs for 2014.

4. Rick purchased a uranium interest for $10,000,000 on January 3, 2014, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2013 and 7,000 units were sold in 2014. Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000. Determine the depletion deduction for 2014.

5. Discuss the difference between the half-year convention and the mid-quarter convention.

6. Discuss the criteria used to determine whether a building is residential or nonresidential realty. Also explain the tax consequences resulting from this determination if the property is placed in service in 2014.

7. Discuss the effect on the cost recovery method of a taxpayer election if the uniform capitalization rules apply to a farming business.

8. Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

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9. Discuss the beneficial tax consequences of an SUV notbeing classified as a passenger automobile.

10. Discuss the reason for the inclusion amount with respect to leased automobiles.

ANSWER: The purpose of the inclusion amount is to prevent taxpayers from circumventing the cost recovery dollar limitations by leasing, instead of purchasing, an automobile.

11. Discuss the requirements in order for startup expenditures to be amortized under § 195.

12. Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.