Problem 1

Robles Enterprises, a multi-location printing company, purchased the following during 2019:

New printers costing $1,080,000.

• How much is the maximum cost recovery deduction for 2019?
• Assuming they claimed the maximum in 2019, how much is deductible in 2023?
• Assuming the photocopiers were sold for $75,000 on April 18, 2021, how much is the 2021 cost recovery deduction?
• Answer the above questions if Robles elects out of bonus depreciation and does not elect under 179.

Presidents used vehicle (2017 Jaguar XL weighing 4,800 pounds) costing $36,500.

• How much is the maximum cost recovery deduction for 2019, assuming the owners have adequate net income?
• Assuming they claimed the maximum in 2019, how much is deductible in 2021?

Nonresidential real estate purchased for $875,000 ($155,000 assigned to land); placed in service May 18, 2019. How much is deductible in 2019? How much for 2028? How much for 2030 if the real estate is sold on January 2, 2030?

Robles purchased a competing business in April 2018, including $337,500 allocated to goodwill. How much is deductible in 2019?

Problem 2

The Li Farm had a very good day in September 2014. The 10,000 foot deep well in the back 40 hit oil. The family had paid $18,000,000 for the property with $200,000 allocable to sheds, fences and other improvements. They estimate that the land was worth $9,800,000, but they paid more because they also received the mineral rights.

The oil company working the land estimated that there were 1 million barrels of extractable oil in the field, all of which was under Armstrong land.

During 2019 the Lis received the following from the oil company that was working their land.

Gross oil and gas royalties (5,000 barrels) $213,000

Minus O

Oil and gas wellhead taxes - 9,200

Net cash $203,800

Calculate the Li family net income for federal income tax purposes from the royalties. No depreciation on the sheds, fences, etc. is allocable to this source.

Problem 3

Freddy purchased $500,000 worth of 5-year equipment for use in his business. What is the present value of the savings under bonus depreciation (compared to MACRS depreciation)? Freddys marginal tax rate in all years is 40 percent and his cost of capital is estimated to be 10 percent.

How would Freddy analyze whether this is a wise investment?

Problem 4

According to the Internal Revenue Code, bonus depreciation under 168(k) is mandatory. Explain.

Problem 5

Joseph Enterprises purchased twelve desktop computers for business use. Each computer cost $1,350. As you recommended, Joseph Enterprises purchased each computer separately. Explain.

Problem 6

Eddie inherited an individual retirement account worth $225,000 in 2020. Under the Secure Act that was passed in 2019, Eddie will need to withdraw the entire balance within 10 years of this inheritance. How much is Eddies basis in the account? How much income does Eddie recognize if he withdraws the entire $300,000 balance in 2030?