[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for REG. 🙂

[CPASF1]

Bill and Hillary were divorced in Year 1. The divorce decree provides that Hillary pay alimony of $10,000 per year, to be reduced by 20% on their child’s 18th birthday. During year 5, Hillary paid $7,000 directly to Bill and $3,000 to UCLA for tuition for their child, who had turned 18 during year 4. What amount of these payments should be reported as income in Bill’s year 5 income tax return?

Can someone please explain why this is $8,000 and not $7000? The way I saw it was that on their child's 18th birthday, alimony would be reduced by $2000, which means that alimony was $8,000 and child support was $2000. but since the child is now 18, and H only paid B 7,000, wouldn't that mean she was short $1000 and therefore B would only claim $7000 as alimony. isn't what H is giving her child up to her after age 18 and doesn't involve B anymore?
thanks!

[thebigguy1992]

Sally Markey, who owns a heavy construction company, decided to spend some of her $2,000,000 2016 profit on several heavy-duty diesel trucks costing a total of $1,110,000 for her business. In order to lower her income taxes for the year, she decided to take the maximum IRC Section 179 deduction, bonus depreciation, and MACRS depreciation for 7-year property. No other capital assets were purchased during the year. What is the total deduction for the truck in 2016?
A.

$543,585
Correct B.

$848,585

why isn't the depreciation *2/7? I thought MACRS uses DDB in the first year, so it would be 2/7 and not 1/7 for depreciation?

[539Mayor]

@thebigguy1992

For the first year you only get a half year of depreciation. So whatever a full year is just take half.

[celia]

@thebigguy1992

Is there any MACRS table?

I had a similar question from becker and they give MACRS table at the question.

(they give 14.29% first year seven-year asset factor from MACRS table)

Step 1 Section 179 1,110,000 – 500,000 = 610,000

Step 2 Bonus 610,000* 50% = 305,000

Step 3 305,000*14.29% = 43,585

500,000+305,000+43,585 = 848,585.

When I got this question and use the table and didn't think about DDB.

Also, I tried a taking half off from a full year, I couldn't get exact number.

Is this right?

[californiaholic]

For Involuntary Bankruptcy, is the unsecured claim amount still $15,325? It says it was last adjusted on 4/13 and updated every 3 years so I'm assuming it has changed?

[CPYay]

@californiaholic

I assume for exam purposes it is still $15,325 due to both Roger and Ninja using that number in the Audio and in the MCQs.

[thebigguy1992]

@jcberthound

then why is this answer explanation exactly the opposite of what you just said? it says in the first year depreciation is 2/7 for MACRS depreciation…you are saying in the first year it should be 1/7 since they cut it in half.

On December 1, Year 4, Jim Miller placed in service office furniture (7-year life), which cost $28,000. Jim did not elect Section 179 expensing or bonus depreciation. The office furniture was the only asset purchased during the year. What amount can Jim claim as depreciation under MACRS for Year 4?
Correct A.

$1,000
B.

$2,000
C.

$4,000
D.

$7,000

Answer explanation:
First-year depreciation under MACRS is based on double declining balance. A 7-year life would yield depreciation of 2/7 the first year. Because the purchase was made in December, the mid-quarter convention is used and 1-1/2 months of depreciation is recorded. Depreciation is $1,000 ($28,000 × 2/7 × 1.5/12).

[thebigguy1992]

can anyone tell me what would happen to the answer to this question if distributions exceeded adjusted basis of 55k? would not the whole 40k be included in gross income? why in s corps do tax-exempt income increase the basis but aren't included in AGI?

Graphite Corp. has been a calendar-year S corporation since its inception on January 2, Year 1. On January 1, Year 9, Smith and Tyler each owned 50% of the Graphite stock, in which their respective bases were $12,000 and $9,000. For the year ended December 31, Year 9, Graphite has $80,000 in ordinary business income and $6,000 in tax-exempt income. Graphite made a $53,000 cash distribution to each shareholder on December 31, Year 9. What total amount of income from Graphite is includible in Smith's Year 9 adjusted gross income?
A.

$96,000
B.

$93,000
C.

$43,000
Correct D.

$40,000

[ruchita.jain88]

Hi all,

In separately stated items (S-corps), I am confused about the interest expense of the corporation. In some answers, the interest is separately stated and in some it is deducted to arrive at the ordinary income of the entity. I am not sure when to deduct it as ordinary expense and when to not ??
Please advice.

[thebigguy1992]

interest income is separately stated, but interest expense is not separately stated and can be deducted with wages and rent expense, etc. i think

[CPASF1]

Why is the gift above $28,000 not taxed? I looked in both the Roger and Wiley books and couldn't find an explanation for this, thanks!

A husband and wife agree to split monetary gifts to their relatives. The husband gives his daughter $22,500, and the wife gives her niece $19,000. The annual exclusion is $14,000. What amount is the taxable gift for the husband and wife?

A.
$0 (correct)

Incorrect B.
$13,500

C.
$17,000

D.
$37,500

here's the wiley example:

TP is married to S and this year made a gift of $50,000 to his son. If TP and S elect to gift splitting, the $50,000 gift is treated as two $25,000 gifts to the son, one gift from TP and one from S. Each gift would be eligible for an annual exclusion of $14,000 (2016), so each spouse would have made a taxable gift of $11,000.

[Eli]

Does anyone have tips on using the AL to find the research question or using it to help with the other SIMS? If you put in quotations these key words next to one another, for example, “medical” “itemized” “deduction”, will the AL bring up all sections that have those three words somewhere in the the same section (by section I'm referring to the links that appear whenever you search for key words.)

As another exampe, if you serach “medical deduction” will it pull all sections that have deduction following the word medical?

I guess the AICPA subscription does not include the IRC code literature like it does for audit and far. I'm planning on using the cornell law website to practice if that matters at all.

Thanks in advance.

[RE2PECT]

@CPASF1- Each recipient is treated separately so you can combine the husband and wife's amount for each gift. The daughter received $22500 and the niece got $19000. Both gifts are below $28000 and not taxable to the husband and wife.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[CPASF1]

@RE2PECT thank you!

[jordancole]

HeyGuys- I test Friday and came across this becker sim from chapter 3 that has me befuddled. My primary issue is that the answer uses the FV of all of the property to determine gains realized. Is this question not a Tax-Free Reorganization? I understand that they are also providing services, but they give property that is >80%?

Jones, Mitchell, Carey, and Gorman are knowledgeable about landscape design. They have decided to pool their knowledge and resources to form Arrington Enterprises, Inc., a C corporation. They will provide professional services to area businesses and homeowners. All participants expect to work full time for Arrington Enterprises, and each expects to contribute sufficient assets to become a 25% shareholder with a total stock equity of $50,000 each.

In addition to the skills that each brings to the new entity, the owners will contribute assets that will enhance the company's ability to provide quality technical design and planning services. These assets include a building, land, lawn care equipment, office furniture and equipment, and cash for initial operating expenses.

The table below shows the assets contributed by each shareholder. In all cases, the liabilities are recourse and are assumed by Arrington Enterprises, Inc. There are no tax avoidance purposes inherent in the assumption of shareholder liabilities.

Shareholder Contributions to Arrington Enterprises, Inc.

Shareholder / FV of Property / Liability w/ property / Basis in property / Cash contributed / Cash distributed to shareholder
Jones / 120,000 / 60,000 / 100,000 / 0 / 10,000
Mitchell / 80,000 / 50,000 / 40,000 / 20,000 / 0
Carey / 40,000 / 20,000 / 20,000 / 30,000 / 0
Gorman / 70,000 / 0 / 50,000 / 0 / 20,000

Jones Tax Basis = 40,000
Carey Tax Basis = 30,000

Jones Gain Realized = 20,000
Carey Gain Realized = 20,000

Jones Gain Recognized = 10,000
Carey Gain Recognized = 0

PLEASE HELP TEAM! 🙁

[Author]

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