BestBusiness LLC bought two machines in the last two years.

They bought the first

machine on December 28 of last year. The machine arrived in the plan on January 2 of
the current year and it was installed in Feburary 15 of the current year. The purchase
price was $65,000. The second machine was purchased on November 15 and delivered
and installed on December 3. The purchase price was $35,000. Which depreciation
convention should they use?

A. Half-year
B. Mid-quarter
C. Mid-month
D. They can choose between half-year and mid-quarter.
They should use half-year. This is the default for personal property placed into service.
The mid-month convention is used for real property. The mid-quarter convention would
be used if greater than 40% of personal property is placed into service in the property is
placed into service in the last quarter. In tbis example, the first machine is not placed
into service until the current year because it was not actually installed until February 15.
Therefore, 65% was placed into service in the first quarter and only 35% was placed in
the last quarter.
Molly, a CPA, performed services for McButter Partnership and, in lieu of her normal
fee, accepted a 15 percent unrestricted capital interest in the partnership with a fair
market value of $10,000. How much income from this arrangement should Molly report
on her tax return?

A. $0
B. $1,500
C. $10,000
D. $66,667
Answer: C

If a partner contributes services to the partnership, the partner must recognize ordinary
compensation income for the value of the services. In this case, Molly must recognize
$10,000 of compensation income.