[jeff]

Welcome to the Q2 2016 CPA Exam Study Group for REG.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Just3Letters]

Can somebody tell me why D is not correct? I took the 500k plus I added 5%. Isn't the first year depreciation 5% under 7 year MACRS?

Sally Markey, who owns a heavy construction company, decided to spend some of her $2,000,000 2014 profit on five heavy-duty diesel truck costing $555,000 for her business. In order to lower her income taxes for the year, she decided to take the maximum Section 179 deduction plus the MACRS depreciation for 7-year property. The ceiling for Section 179 in 2014 is $500,000. No other capital assets were purchased during 2014. What is the total deduction for the truck in 2014?

A.
$503,930

B.
$531,430

C.
$500,000

Incorrect D.
$527,500

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[csvirk]

Thank you @Ano & @Just3 for explanation.

@Just3

To my understand this question will not be tested anymore. It has 2014 rules. But here is my explanation.

Ceiling is 500K + 50% of Bonus Depreciation of 55K + 14.29% of 55K (after subtraction 50% bonus Depreciation)

here is how they derived 14.29%

MACRS = 2/7 and mid year convention.

2/7 = .2857 * 6/12 = .1429 or 14.29%

500K
+ 27.5 (55K * 50%)
+ 3.93 ((55 – 27.85) * 14.29%)

= 531,430.

Someone please correct if I am wrong.

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Anonymous]

Answer per becker is C. 0.

I thought the deductible Medical Expense Formula was

Qualified Medical Expense: $5300

*minus*

Insurance Reimbursement: 0

=Qualified Medical Expenses “Paid”: $5300

*minus*

‐ 10% AGI OR 7.5% for 65 or Older .: 7.5% 65,000=$4875

=Deductible medical expense: $425

What am I missing here?

During the year, the Andradis', who were both under age 65, paid the following expenses:

Unreimbursed costs for prescription drugs required for their dependent daughter's medical condition
$ 2,300

Mrs. Andradis' face lift
4,000

Physical therapy for their dependent son's soccer injury
3,000

Massage therapy fees at Mr. Andradis' health club obtained because he enjoys massages
500

The Andradis' adjusted gross income for the current year was $65,000. What amount could be claimed on the Andradis' current year tax return for medical expenses?

a.
$4,875
b.
$2,300
c.
$0
d.
$5,300

[Just3Letters]

Csvirk, thanks!

It was the bonus depreciation I was missing which was good considering it's not testable anymore. Super helpful 🙂

cpa1,

The answer is 0 because medical expense deductions can only be taken “IN EXCESS” of 10% of your AGI. I emphasized in excess because that is the tricky part that the AICPA is hoping to trick us on.

The Andradis's AGI is $65,000 so 10% of that is $6500. Any expenses that are in excess of $6500 are deductible. In this case, the expenses do not exceed that minimum amount. The only medical expenses that would count are the physical therapy for soccer injury and prescription drugs. Those add up to $5300.

I honestly have no idea what your formula stuff is at the top. Sorry! I just remember the 10% AGI rule 🙂

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Anonymous]

@just3Letter Since the Andradis are age 65, aren't we supposed to use 7.5% instead of 10% of AGI?

[Just3Letters]

@cpa1,

You are correct. Over age 65 is deductible over 7.5% AGI. If you have Becker, the explanation is in the REG text on R2-19.

However, the question states that they are “under” 65 haha

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Anonymous]

@Just3Letter Oh man…I misread…thanks @Just3Letters..I get it now

[Spartans92]

How do you guys remember all of these AGI limitations.. any tips? For example, 30% of AGI for contribution of property to charity etc.

BEC- PASS

[Just3Letters]

Spartans, remembering the limitations is the toughest part of REG in my opinion. I've read some comments from people answering that question and most say that you only need to know a certain few that are key.

For example, definitely need to know 10% AGI floor for medical expenses. 50% for cash charity donations, 30% for FMV property donated, know that premiums paid on life insurance above $50,000 are taxable. Just know the ones like this that come up a lot in the MCQ.

Essentially, I think people agree that whichever of these limitations you remember are good. However, the test doesn't commonly test on very specific limitations unless they give the limitation in the question. The test wants to know if we can find taxable income/AGI/AMT, etc. with the information provided.

I'm not going to memorize all those limitations because my brain doesn't have room.

That being said, I just got a 65 on the first Becker practice exam and I'm super bummed right now :/ I couldn't even find the stupid answer to the research question :((

I got a 68 on the first test for FAR and ended up passing so maybe I still have hope. I feel like REG has been tougher as a whole than FAR was…

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Spartans92]

Thanks Just3.. Good luck with REG! I will read your response in more detail later since it is father's day haha (just swinging by to see). I hope you have a wonderful day with your family as well!

BEC- PASS

[Bear-Bear]

52% through adaptive learning and trending 76%. I'm SO tired of doing MCQs. I have done around 700 this weekend.

[csvirk]

Don Wolf became a general partner in Gata Associates on January 1, Year 1, with a 5% interest in Gata’s profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business. For Year 1, Gata had an operating loss of $100,000. In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be used to pay for this equipment. Wolf’s passive loss for Year 1 is:

Incorrect A.
$0.

B.
$4,000.

C.
$5,000.

D.
$6,000.

Why the answer is C? isnt passive loss are only netted against passive gains?

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Josh]

I just got a question that occurred to me out of nowhere about S Corporations while watching Gleim Instruct. So a husband and wife are considered a single shareholder for the 100 rule. What happens if you're married to a non-citizen like I am? Can I own a S Corporation? These citizenship requirements are fun, and all this “general” stuff. I imagine that's on the EA exam or bar? I should probably just focus on the stuff on the exam like the differences between entities and shareholders that are confusing me at the moment.

[csvirk]

Dale was a 50% partner in D&P Partnership. Dale contributed $10,000 in cash upon the formation of the partnership. D&P borrowed $10,000 to purchase equipment. During the first year of operations, D&P had $15,000 net taxable income, $2,000 tax-exempt interest income, a $3,000 distribution to each partner, and a $4,000 reduction of debt. At the end of the first year of operation, what amount would be Dale's basis?

A.
$16,500

Incorrect B.
$17,500

C.
$18,500

D.
$21,500

Explanation:

Dale's basis in D&P Partnership:

Cash invested $10,000
50% of D&P debt 5,000
50% of taxable income 7,500
50% of tax-exempt income 1,000
Cash distribution (3,000)
50% of reduction of debt (2,000)
——–
$18,500
Why are they subtracting reduction of debt? aren't we suppose to add reduction of debt? Thank you

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Anonymous]

@csvirk – you don't add reduction of debt if it's a partnership. reduction of partnership debt would decrease the partner's at risk amount.

[Author]

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