REG Study Group – Q1 2018 - Page 16

Is it just the $1.2M in 20 acres of land adjusted basis/2 = $600K AB for 10 acres of land

$700K-$600K = $100K/2 = $50K to Fred and $50K to Melissa?

I missed the original post, but I'm guessing they did not realize you were talking about the Sample exam questions vs real exam questions?
Very weird…

You explanation is correct. According to the TB the original land purchase was 1.2m, for 600k for each 10 acre plot.
The FMV of the land before distribution was 700k for each lot. The distribution to shareholder counts as sale resulting in 100k gain to corp, of which 50% goes to each shareholder as equal owners. The other shareholder will also receive a cash distribution of 700k.

Also, one hell of a business.
Put up 700k a piece, second year revenue at 2m, and already returning 700k each back to the investors/shareholders.
Not too shabby.

@Recked Thanks! Yes I was discussing the PRACTICE exam on the AICPA website. Anyhow, thanks for the confirmation.

We had talked about the accumulated adjustments account this morning. I find myself struggling with the computation even with understanding of the formula. Falcon's 12/31/year 4 accumulated adjustment account balance = $484K?

Also, the computation for Jennifer Sullivan's 12/31/year 4 tax basis = $252? I know she starts out with 60K.

@Lentil

I remember that problem. Without looking at it, I think I remember that 252 being beginning basis of 60k + share of ord. business inc. of 220K – separately stated charitable contributions of 12K – nondeductible expenses of 1K – distributions of 15K.

I remembered you posting a link before and that's why I tried. Maybe they just monitor these threads more closely.

@Katie Thanks!
@Recked appreciate it!

This practice test is making feel dumb. Sigh.

For the depreciation SIM, how is the depreciation deduction and remaining basis using the actual expense method since purchase calculated?

Depreciation deduction = $20K cost basis – year 1 depreciation of ($20K*.20*.5)*.75 = $18.5K year 2 beginning cost basis

$18.5K*.32*.5*.75 = $2,220 but the right answer is $2,600?

Remaining basis using actual expense method since purchase calculation = year 1 ($5K+$4K+$3K)*.75 = $9K
year 2 = ($7K+$4K+$2K)*.75 = $9.75K

$9K+$9.75K = $18.75K

$20K – $18.75K = $1.25K which is way off from the $14.6K answer?

Ugh.

2 things you got wrong.
First, the .5 is already included in the MACRS of 20%.
If MACRS did not have the half year convention already factored in the first year full year depreciation would be 40% (DDB).

Second, MACRS does not reduce depreciable basis when factoring 2nd year depreciation.
You stay with the full 20k, 32%, half, 75%.

I am not sure what are you doing to calculate remaining basis using actual expense.
If you use actual expense you take actual depreciation. Other expenses for auto use do not reduce basis in the auto asset, only actual auto depreciation expense claimed reduces the assets basis.

First year 20,000 x .2 x .75 = 3000
2nd year 20,000 x .32 x .5(half year in year sold) x .75 business use = 2400
20000 – 3000 – 2400 = 14,600 auto basis in year 2 when auto sold.

@Lentil, I just tried to post the main part of the link as an example and it rejected that too. I guess you just aren't allowed to post google docs on here. I tried to go to the list of rules using the link they put in my earlier post and it didn't exist. I give up haha.