Ignore the impact of payroll taxes, self-employment taxes in your calculations, unless specifically identified as an element of the question. • In the year of purchase, a taxpayer may elect to claim a $1,000,000 Section 179 election on purchases of non-realty used in a business. Assume that this election applies only if a question expressly mentions that this election has been made. • A taxpayer may exclude $250,000 of gain per person upon the sale of a principal residence. Audrey owns and operates her own pizza delivery business. Audrey bought a small car on July 1, Year 1 for $25,000. She uses this car solely for business purposes. According to IRS tables, the depreciation factors applicable to this car are “Year 1: .20” and “Year 2: .32.” (Section 179 is not elected.) The fair market value of this car on January 1, Year 2 was $17,000. In Year 1, and again in Year 2, Audrey, a single taxpayer, has AGI of $40,000, no property transactions and $9,000 of itemized deductions (attributable solely to interest paid on her home mortgage and to California tax payments), exclusive of the following. Each of the following is an independent case. 1. By what amount, if any, does depreciation on this car in Year 1 reduce Audrey’s Adjusted Gross Income in Year 1? 2. Assume instead that Audrey purchased this car on December 1, Year 1, instead of on July 1, Year 1. Relative to the amount of depreciation that Audrey would have been able to claim if she had purchased this car on July 1, Audrey’s decision to delay this purchase until December 1 results in her depreciation deduction: a. Decreasing by 50% b. Decreasing by 66.7% c. Decreasing by 75% d. Decreasing to Zero e. Not changing
Ignore the impact of payroll taxes, self-employment taxes in your calculations, unless specifically identified as an element of the question.
• In the year of purchase, a taxpayer may elect to claim a $1,000,000 Section 179 election on purchases of non-realty used in a business. Assume that this election applies only if a question expressly mentions that this election has been made.
• A taxpayer may exclude $250,000 of gain per person upon the sale of a principal residence.
Audrey owns and operates her own pizza delivery business. Audrey bought a small car on July 1, Year 1 for $25,000. She uses this car solely for business purposes. According to IRS tables, the
In Year 1, and again in Year 2, Audrey, a single taxpayer, has AGI of $40,000, no property transactions and $9,000 of itemized deductions (attributable solely to interest paid on her home mortgage and to California tax payments), exclusive of the following. Each of the following is an independent case.
1. By what amount, if any, does depreciation on this car in Year 1 reduce Audrey’s Adjusted Gross Income in Year 1?
2. Assume instead that Audrey purchased this car on December 1, Year 1, instead of on July 1, Year 1. Relative to the amount of depreciation that Audrey would have been able to claim if she had purchased this car on July 1, Audrey’s decision to delay this purchase until December 1 results in her depreciation deduction:
a. Decreasing by 50%
b. Decreasing by 66.7%
c. Decreasing by 75%
d. Decreasing to Zero
e. Not changing
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