equipment and was reimbursed the set amount of $40,000. Identify the relevant is
ID: 2530190 • Letter: E
Question
equipment and was reimbursed the set amount of $40,000. Identify the relevant issues for,John with respect to § 179 and the computation of his taxable income Lo.4 Discuss how the limits on cost recovery apply to listed property 15. 16. LO.4 Discuss the tax consequences if the business use percentage of listed prop- 17. LO.7 Explain the amortization period of a s 197 intangible if the actual useful life is erty falls to 50% or lower after the year the property is placed in service. less than 15 years. Harold and Bart own 75% of the stock of Orange Motors. The other 25% of the stock is owned by Jeb. Orange Motors entered into an agreement with 18. (LO Harold and Bart to acquire all of their Orange stock. In addition, Harold and Bart signed a noncompete agreement with Orange Motons. Under the terms of the noncompete agreement, Orange will pay Harold and Bart $15,000 each per year for four years. Identify the relevant tax issues for Orange Motors. 19. LO.7 In May 2017, George began searching for a trade or business to acquire. In anticipation of finding a suitable aquisition, George hired an investment banker to evaluate three potential businesses. He also hired a law firm to begin drafting regula- tory approval documents for a target company. Eventually, George decided to purchase all of the' assets of Brash Corporation. Brash and George entered into an acquisition agree ment on December 1, 2017. Identify the relevant tax issues for George. 20. L0.8 Discuss how the cost of mineral rights enters into the calculation of cost depletion.Explanation / Answer
15. The cost of listed property that does not pass the more than 50% business usage test must be recovered using straight line method. If listed property is an automobile, the cost recovery is further limited by cost recovery limitations.
16. The property is subject to cost recovery recapture, which is included in the tax payer's incometax return as ordinary income. The amount of inclusion is the excess cost recovery, which is the excess of cost recovery deduction taken in prior years using the statutory percentage method over the amount that would have been allowed if the straight line method had been used since the property was placed in service.
17. The amortization period is 15 years regardless of actual useful life.
18. The tax issues for Orange will be-
19. Relevant tax issues for George are -
20. The cost basis is divided by the estimated recoverable units of the asset to arrive at the depletion per unit. The depletion per unit is then multiplied by the number of units sold during the year to arrive at the cost depletion allowed.
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