LD Partnership, a cash basis taxpayer, purchases land and a building for $200,00

Question

LD Partnership, a cash basis taxpayer, purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building. The gross receipts of the partnership are less than $100,000. LD must capitalize the $50,000 paid for the land but can deduct the $150,000 paid for the building in the current tax year True False 2. Purchased goodwill must be capitalized but can be amortized over a60-month period. True False 3. The basis of cost recovery property must be reduced by at least the cost recovery allowable. True False 4. The key date for calculating cost recovery is the date the assetis placed in service. True False 5. Land improvements are generally not eligible for cost recovery. True False 6. The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion True False 7. If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery. True False 8. Motel buildings have a cost recovery period of27.5 years. True False 9. Taxpayers may elect to use the straight-line method under MACRS for personalty. True False 10. For personal property placed in service in 2018, the § 179 maximum, deduction is limited to $1,000,000. True False 11.Any 5 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year True False 12.The basis of an asset on which $20,000 has been expensed under 5 179 will be reduced by $20,000, even if $20,000 cannot be expensed in the current year because of the taxable incomelimitation. True False

Explanation / Answer

1. False (cannot deduct the amount paid for building in the current tax year)

2. False (purchased Goodwill cannot be capitalized)

3. True (it is possible to reduce basis of cost recovery property)

4. True (cost recovery is calculated from the date which asset is placed)

5. False (land improvements are eligible for cost recovery)

6. True (fair market value is used for conversion)

7. True

8. False (motel buildings do not have 27.5 years of cost recovery)

9. True (taxpayer may use straight line method)

10. True (yes, it is limited to 1 million)

11. True (yes, it is subject to business income limitation)

12. True

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