Question

1.Pyle Inc., a calendar year taxpayer, generated over $10 million taxable income in 2016. Pyle made one asset purchase: new transportation equipment costing $322,000. The equipment has a 5-year recovery period and was placed in service on February 9. Assuming that Pyle made the Section 179 election with respect to the equipment, compute Pyle's 2016 cost recovery deduction.

a.$193,200

b.$322,000

c.$64,400

d.$500,000

2.Which of the following statements regarding a partner's tax basis in a partnership interest is true?

a.Partnership tax basis is increased annually by cash distributions from the partnership.

b.Partnership tax basis is reduced by the partner's share of nondeductible partnership expenses.

c.Partnership tax basis is reduced by the partner's share of nontaxable partnership income.

d.Partnership tax basis becomes negative if allocable losses exceed basis.

3.Kelly received a $60,000 salary during 2016. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2016 was $118,500. What is the total amount that her employer should have withheld in 2016?

a.$16,590

b.$12,000

c.$4,590

d.$0

Answer 1

1)

Under section 179, one can claim a deduction for all or portion of the cost of the qualified tangible personal property in the current year. The maximum limit of deduction is $500,000 and phased out dollar-for-dollar if $2 million or more of qualified tangible personal property placed into service in the year.

Since the transport equipment bought is qualified tangible personal property, therefore section 179 deduction is allowed.

Since the cost of the equipment is $322,000 which is lower than the maximum deduction limit of $500,000, therefore all the cost i.e. $322,000 can be taken as the deduction.

Hence cost recovery deduction will be $322,000.

Thus option (b) is correct.