179 Expense Election, Property Exchanges, and Recovery Provisions

Due June 27

Discussion

(1) Consider the software costs that a corporation incurs for programs that it will use for several years. How are these costs currently treated for tax and accounting purposes? Support your position with relevant articles and regulations from the IRS website or any other reputable tax law resource.

(2) Describe the four types of expenditures that a producer may include for amortization or depletion, and explain how they relate to the depletion of assets such as oil and gas. Do you think that other expenditures should be allowed or that any of these four should be limited? Explain.

(3) Describe the key components that determine the tax basis of the assets that qualify for amortization or depletion and the two methods of calculating depletion. Do you think these methods are an appropriate method for calculating the basis and expensing the assets?

Due June 30

Application

179 Expense Election, Property Exchanges, and Recovery Provisions

In a Word document, answer the following questions:

Part 1: 179 Expense Election

Suppose that you are an accountant and one of your clients, a pizza business, just bought a brand-new oven and a vehicle. You suggested taking the Section 179 deduction against the new oven. The new oven cost $200,000 and a new delivery vehicle cost $20,000, both purchased by the client.

What would be the tax effect for the corporation of using the Section 179 deduction?

Are there any limitations to this election?

Explain how HIRE may have an impact on the limitations established for expensing qualifying business assets and how it would affect your client.

Part 2: Gain/Loss Exchanges on Property Transactions

Answer the following questions:

How are realized and recognized gains or losses of property exchanges calculated differently?

List the steps for determining bases for various methods of asset acquisition and disposition.

Show how the relevant formulas account for the postponement of gain or loss in property transactions.

Part 3:1231 Exchanges and Recapture Provisions

Fifteen years ago, Corporation X acquired equipment for $100,000. The corporation recently sold the equipment for $50,000. The associated accumulated depreciation of this equipment was $60,000. Determine whether the transaction qualifies as a 1231 exchange or whether the recapture provision of Section 1245 applies instead. Explain your position.

Please add references:

Book used

Willis, E., Hoffman, W. H., Jr., Maloney, D. M., Raabe, W. A., & Young, J.C. (Eds.). (2012). South-Western federal taxation: Comprehensive volume (2012 ed.). Mason, OH: South-Western Cengage Learning.