8-62006 Comprehensive Volume/Solutions
10.The relevant tax issues for Jed are:
Whether the costs associated with the tin added to the original “bath” mixture may bededucted as business expenses or must be capitalized.
If the costs must be capitalized, what is the period of their cost recovery?
Whether the costs associated with the additional tin added to the “bath” mixture may be deducted as business expenses or must be capitalized. pp. 8-1 to 8-911.The MACRS straight-line election may be made on a portion of the assets, but it mustapply to all assets in a particular class. p. 8-1012.
Even if MACRS straight-line is elected, personal property is still subject to the mid-quarter convention if more than 40% of the value of property, other than real property, is placed in service during the last quarter of the tax year. pp. 8-10, 8-12, and ConceptSummary 8-313.An asset used in connection with an individual’s personal investments would not be anasset used in a trade or business. Therefore, the asset would not qualify for the § 179expensing election. Neither investment property nor personal use property is eligible for the § 179 expensing election. Investment property is eligible for cost recovery, however. pp. 8-5 and 8-1014.The basis of the asset is reduced by the § 179 limited expensing deduction (after applyingthe $420,000 limitation and before the taxable income limitation) before computing theMACRS cost recovery. pp. 8-11 and 8-1215.The § 179 amount eligible for expensing in a carryforward year is limited to the
of (1) the statutory dollar amount $105,000 reduced by the cost of § 179 property placed inservice in excess of $420,000 in the carryforward year or (2) the business incomelimitation in the carryforward year. p. 8-1116.Taxable income, for § 179 purposes, is defined as the aggregate amount of taxableincome of any trade or business of the taxpayer without regard to the amount expensedunder § 179. Therefore, the taxable income computation for purposes of the § 179 limitincludes the deduction for MACRS. pp. 8-11 and 8-1217.The following issues are relevant for Ana:
Is the new motor home inventory?
Is the new motor home an asset subject to cost recovery?
Does the new motor home qualify for the § 179 expensing election? pp. 8-5, 8-6, and 8-1018.An automobile is listed property and consequently must pass the predominantly businessuse test to be eligible for MACRS statutory percentage cost recovery. However, byweighing more than 6,000 pounds, the automobile is not subject to the statutory dollar limits on cost recovery. However, the AJCA of 2004 provides that SUVs with a GVW