Book 4 Pages 61-120

Question 1

true or false? self employed individuals can deduct expenses attributable to a home office as an itemized deduction

Answer 1

false, they can deduct it as an above the line deduction

Question 2

true or false? regular employees can deduct expenses attributable to a home office as an itemized deduction

Answer 2

true, subject to 2% AGI floor

Question 3

what is the simplified method option in regards to deducting home office expenses?

Answer 3

$5 per square foot for a maximum of 300 square feet or $1,500 of deductible expenses

Question 4

does the simplified method under home office expense deductions allow you to deduct depreciation?

Answer 4

no

Question 5

does the simplified method under home office expense deductions allow you to carry forward any expenses (loss) above your gross income from the business?

Answer 5

no

The simplified method, as announced in Revenue Procedure 2013-13, is an easier way than the method provided in the Internal Revenue Code (the “standard method”) to determine the amount of expenses you can deduct for a qualified business use of a home.

Can the simplified method be used for one taxable year and the standard method be used in a later taxable year?

• Yes. You may elect to use either the simplified method or the standard method for any taxable year. However, once you have elected a method for a taxable year, you cannot later change to the other method for that same year.

You determine the amount of deductible expenses by multiplying the allowable square footage by the prescribed rate. The allowable square footage is the smaller of the portion of a home used in a qualified business use of the home, or 300 square feet. The prescribed rate is $5.00.

Question 6

true or false? seeking new employment in the same trade or business is deductible whether you get the job or not

Answer 6

true

Miscellaneous Deductions were taken out in 2017 Jobs Act.

Question 7

true or false? seeking employment in a different trade or business is not deductible

Answer 7

true

Question 8

true or false? no deduction is allowed if you are seeking employment for the first time

Answer 8

true

Question 9

true or false? malpractice insurance is an available itemized deduction

Answer 9

true

Question 10

true or false? medical expenses are an available itemized deduction

Answer 10

true

Question 11

are casualty losses itemized or above the line deductions?

Answer 11

itemized

For tax years 2018 through 2025, the Act has suspended the itemized deduction for personal casualty and theft losses. Prior to this change in law, personal casualty or theft losses were only deductible to the extent they exceeded $100 per casualty or theft event. In addition, the aggregate net casualty and theft losses for the year were deductible by those who itemized their deductions but only to the extent that the loss exceeded 10% of an individual’s adjusted gross income (AGI).

The Act did, however, retain a deduction for qualified disaster-related personal casualty losses for years 2018 through 2025. A qualified disaster-related personal casualty loss is one that occurs in a presidentially declared disaster area and is a result of the disaster.

For example, if your home was destroyed by a hurricane within an area the president has declared to be a disaster area and you have a casualty loss, you are able to deduct the loss. However, if your home is destroyed by a fire that was not in a disaster area (say, due to a fire that started in your kitchen when cooking), you cannot claim a casualty loss, even though your loss would be as great as that of the individual residing in the disaster zone.

Question 12

medical expenses are subject to a ___% AGI floor in order to be deductible

Answer 12

10%

Question 13

true or false? self employed individuals can deduct health insurance premiums as above the line deductions

Answer 13

true

Question 14

true or false? state and local sales tax is deductible

Answer 14

true

Question 15

true or false? state, local, and foreign income taxes are deductible

Answer 15

true

The Tax Cut and Jobs Act limits the total state and local tax deduction to $10,000

As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes.

If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. You cannot deduct any of them. Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. You cannot take a credit for any of them.

It is generally better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. This is because:

1. A credit reduces your actual U.S. income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax;
2. You can choose to take the foreign tax credit even if you do not itemize your deductions. You then are allowed the standard deduction in addition to the credit; and
3. If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year.

Question 16

true or false? assessments (things that add value to a property) are deductible

Answer 16

false

Question 17

in a real estate transfer, if the buyer pays all the tax what happens to the buyer’s basis in the property?

Answer 17

it increases by an equal value

Question 18

in a real estate transfer, if the buyer pays all the tax what happens to the seller of the property?

Answer 18

the seller’s portion of tax paid is added to the amount realized by the seller

Question 19

in a real estate transfer, if the seller pays all the tax what happens to the buyer’s basis in the property?

Answer 19

it decreases by an equal value

Real Estate Taxes

1. If you pay real estate taxes the seller owed on real property you bought, and the seller didn’t reimburse you, treat those taxes as part of your basis. You can’t deduct them as taxes.
2. If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. don’t include that amount in the basis of the property.
3. If you didn’t reimburse the seller, you must reduce your basis by the amount of those taxes.

Closing Costs added to Basis:

1. • Abstract fees (abstract of title fees).
2. • Charges for installing utility services.
3. • Legal fees (including title search and preparation of the sales contract and deed).
4. • Recording fees.
5. • Surveys.
6. • Transfer taxes.
7. • Owner’s title insurance.
8. • Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions

Question 20

in a real estate transfer, if the seller pays all the tax what happens to the seller of the property?

Answer 20

the buyer’s portion of tax paid is deducted from the amount realized by the seller

Question 21

How much can Robin deduct for her 2017 taxes if she itemizes based on the following info? her 2016 state tax refund was $700 (she took standard deduction in 2016) her employer withheld $4,200 of state income tax for 2017 she also paid an additional $1,200 in state income tax estimated payments

Answer 21

if she itemizes she can deduct $5,400 the $700 tax refund does not offset against the itemized deductions because the refund is from a year where she took the standard deduction

Question 22

how much of the following expenses can Sherry deduct for 2017? state taxes withheld $7,200 refund received from over payments of 2016 state tax liability $1,500 (she itemized in 2016) deficiency assessed and paid for 2015 as a result of audit by the state $3,000 Interest paid on the tax deficiency $500

Answer 22

she can deducted $10,200 the interest on the deficiency is personal interest and not deductible the refund is reported as income under the tax benefit rule and does not affect the deductible amount

Question 23

true or false? you can deduct state and local sales tax, and state and local income tax in the same year

Answer 23

false, only can deduct one i.e. state and local income taxes = 1

Question 24

true or false? qualified dividends are not included in investment income

Answer 24

true

Question 25

true or false? capital gains are included in investment income

Answer 25

false, they are not

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

To the extent that gains are not otherwise offset by capital losses, the following gains are common examples of items taken into account in computing Net Investment Income:

1. Gains from the sale of stocks, bonds, and mutual funds.
2. Capital gain distributions from mutual funds.
3. Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
4. Gains from the sale of interests in partnerships and S corporations (to the extent the partner or shareholder was a passive owner). See section 1.1411-7 of the 2013 proposed regulations.

Question 26

is investment income an itemized or an above the line deduction?

Answer 26

itemized

Question 27

Mario had the following items of income and expense for the current year: interest income from bonds = $5,000 interest income from state bonds = $1,000 margin interest expense = $7,000 how much can Mario deduct if he itemizes?

Answer 27

he can only deduct $5,000 although the interest expense is $7,000 he can only deduct up to the amount of his investment income which is $5,000 since the state bonds are tax free

Question 28

what is the maximum loan amount that you can deduct mortgage interest on?

Answer 28

$1 million

Question 29

what is the maximum loan amount that you can deduct Home Equity Line of Credit interest on?

EXAMPLE 1

Example 1: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home.

Answer 29

$100k

For anyone considering taking out a mortgage, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.

EXAMPLE 1

Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.

Question 30

true or false? the borrower can deduct points up to funds provided plus the seller’s paid points

Answer 30

true

Question 31

how much can Steph deduct given the following info and what happens to the basis of her home? What happens to Tim? she takes out a $100k mortgage she is charged 1 percentage point tim who sold her the home also paid one percentage point to help her get the mortgage steph only provides $750 as a down payment

Answer 31

steph can deduct $1,750 and her basis gets reduced by $1,000 (the amount Tim paid) Tim’s amount realized gets reduced by the $1,000

Question 32

if interest is paid for a business use or the production of income is it deductible ___ AGI

Answer 32

for (above the line)

Question 33

if interest is paid for personal use (investment interest and qualified residence interest) it is deductible ___ AGI

Answer 33

from (itemized)

Question 34

true or false? credit card debt interest is deductible

Answer 34

false

Question 35

true or false? auto loan interest is deductible

Answer 35

false

Question 36

During the current year, Albert paid the following interest charges: mortgage $9,000 loan for household furniture $800 loan to purchase state bond $750 if Albert itemizes how much can he deduct?

Answer 36

$9,000 the furniture is nondeductible consumer interest the loan to purchase state bonds is not deductible

Question 37

When are points on a home loan deductible?

Answer 37

in the current year that they were paid

Question 38

true or false? is termite damage a casualty loss

Answer 38

no

Question 39

true or false? a tornado is a casualty loss

Answer 39

true

Question 40

true or false? earthquakes are a casualty loss

Answer 40

true

Question 41

true or false? floods are not a casualty loss

Answer 41

false, they are

Question 42

are theft losses considered deductible casualty losses?

Answer 42

yes

Question 43

when are theft losses deductible?

Answer 43

in the year they are discovered

For tax years 2018 through 2025, the personal casualty and theft loss deduction isn’t available, except for casualty losses incurred in a federally declared disaster. This means a taxpayer who suffers a personal casualty loss from a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act will still be able to claim a personal casualty loss as an itemized deduction, subject to the $100-per-casualty and 10%-of-AGI limitations mentioned above.

Question 44

the amount of the casualty loss is the lesser of the ______ or the _______

Answer 44

adjusted basis ; decline in FMV resulting from the event

Question 45

true or false? casualty losses are reduced by any insurance recovery that would have been received, regardless if a claim was filed or not

Answer 45

true

Question 46

in 2017, Larry had art worth $10,000 with a basis of $15,000 stolen from his apartment. During the year he had a salary of $30,000 and no other deductions. How much can Larry deduct from the theft?

Answer 46

use the less of the basis or FMV FMV = $10,000 subject to 10% agi floor (10% x $30,000) = $3,000 subject to $100 floor $10,000 - $3,000 - $100 = $6,900

Question 47

true or false? full time military uniforms are usually not deductible

Answer 47

true

Question 48

true or false? work uniforms are not a deductible item

Answer 48

false, they can be if it is a condition of employment and not suitable for everyday wear

Question 49

true or false? the unrecovered investment in an annuity contract can be deducted when the taxpayer dies

Answer 49

false

The unrecovered basis in an annuity can be deducted by the estate but not the unrecovered investment

Question 50

churches, educational institutions, hospitals, medical research organizations are known as ____ charities

Answer 50

public

Question 51

True or false? American Red Cross or Goodwill are examples of public charities

Answer 51

true

Question 52

true or false? cost of childcare while performing charitable activities is deductible

Answer 52

false, it is not

Question 53

true or false? donating blood is nondeductible

Answer 53

true

Question 54

true or false? rental value of property donated to and used by a qualified charity is deductible

Answer 54

false, it is not

Question 55

noncash property between $____ and $_______ does not need an appraisal

Answer 55

$500 ; $5,000

Question 56

true or false? the appraisal costs associated with charitable giving is also included in the charitable gift deduction

Answer 56

false

Question 57

are the appraisal costs associated with charitable giving deductible at all?

Answer 57

yes, as miscellaneous itemized deductions

Question 58

use related property can be deducted up to ____% of a taxpayer’s AGI

Answer 58

30%

Question 59

true or false? with use related property you can deduct the fair market value

Answer 59

true

Question 60

true or false? with use unrelated property a taxpayer is limited to a deduction of the lesser of the basis or the FMV

Answer 60

true

Question 61

Karen is meeting with her client Jack who donated his collection of impressionist paintings to a private art museum. Jack’s original purchase price of the painting was $50,000 and the FMV today is $300,000. Jack’s gross income for the year was $1 million. How much of the donation can be deducted on his tax return?

Answer 61

$300,000 can be deducted because he donated the art to an art museum it is classified as use related property and therefor can deduct the FMV as long as it doesn’t exceed 30% of his AGI, which is $1 million

Question 62

charitable cash gifts have a ____% of AGI deduction limit if made to public charities or private operating foundations and ____% of AGI deduction limit if made to most private nonoperating foundations

Answer 62

50% ; 30%

Question 63

true or false? charitable cash gifts are deductible for an amount equal to the fair market value of the cash

Answer 63

true

Question 64

ordinary income property and short-term capital gain property can be deducted for the lesser of _____ or _____ and up to ___% of AGI

Answer 64

adjusted basis ; fair market value ; 50%

Question 65

real property donated to a charity can be deducted in which two ways?

Answer 65

fair market value subject to 30% of AGI Basis election subject to 50% of AGI

Question 66

related use tangible property can be deducted in which two ways?

Answer 66

fair market value subject to 30% AGI basis election subject to 50% AGI

Question 67

unrelated use tangible property can be deducted by the lesser of ______ or ______ and subject to a ____% of AGI

Answer 67

adjusted basis ; FMV ; 50%

Question 68

intangibles can be deducted in which two ways?

Answer 68

fair market value subject to 30% of AGI Basis election subject to 50% of AGI

Question 69

Gina graduated from Mumford University. She donated $2,000 to the athletic department of the university to guarantee priority to purchase two premium season tickets to home football games. In addition Gina purchased two season tickets for the regular price of $500 ($250 each). What is Gina’s charitable contribution for the year?

Answer 69

Because Gina is donating money for the right to buy season tickets only 80% of the donation is deductible $2,000 x 80% = $1,600

Previously, if you donated money to a college or university, and in exchange for your donation you got the right to purchase athletic tickets, the donation was 80% deductible. So, if you made a $1,000 donation to a university’s athletic department, you were allowed to treat $800 of that amount as a charitable deduction. Obviously, the cost of the athletic tickets themselves were never deductible, but this was still a big tax deduction for many Americans.

Under the new tax law, this deduction is gone. Beginning with the 2018 tax year (the return you’ll file in 2019), this type of charitable donation does not qualify for the deduction at all.

Question 70

when a donor or seller transfers property to a charity in exchange for a sum that is less than the FMV of the property transferred

Answer 70

bargain sale to charity

Question 71

Steve owns property with a basis of $60,000 and a current value of $120,000, which he sells to charity for $100,000. How much must Steve realize as gain and how much can he deduct as a charitable contribution?

Answer 71

First you have to allocate basis between the sale and the charitable gift. adjusted basis for entire property x (amount realized on sale / fmv of entire property) $60k x ($100k / $120k) = $50k Steve will realize $50k in capital gain calculated as follows: $100k - $50k ($100k is the sales price & $50k is the adjusted basis allocated to asset sale) Steve will also have a FMV for charitable income tax deduction purposes of $20,000 calculated as follows: $120,000 - $100,000 ($120k is the FMV and $100k is the sales price) Steve will also have an adjusted tax basis for charitable income tax deduction purposes of $10,000 calculated as follows: $60,000 - $50,000 ($60k is the adjusted basis & $50k is basis allocated to sale)

Question 72

Clarence makes the following charitable donations: Inventory for resale from business with basis of $8k and FMV of $6k (assumed transferred to public school) Stock acquired 2 years ago with basis of $10k and FMV of $40k (assumed transferred to church) Coin collection held as an investment for 10 years with a basis of $1k and FMV $10k (assume transferred to boy scouts) what is Clarence’s charitable contribution for the year?

Answer 72

$6k (inventory is considered ordinary income property and requires the lesser of the adjusted basis or FMV to be used for charitable deductions) $40k (stock is intangible property so the FMV can be used) $1k (coin collection is tangible property and since it is going to boy scouts it is unrelated use property which means you have to use the lesser of the adjusted basis or FMV total = $47,000

Question 73

the maximum charitable deduction a C-corp can take in a taxable year is limited to ____% of the corporation’s taxable income before certain deductions

Answer 73

10%

Question 74

in the current year , XYZ corp had net income from operations of $60,000 and received a dividend of $4,000 which is eligible for the 70% dividends received deduction. During the year, the corporation donated $8,000 in cash to the University of New Jersey. What is the maximum charitable deduction the corporation can take? What is the corporation’s taxable income for the year? How much of the charitable gift can the corporation carry forward and for how long?

Answer 74

$6,400 is the maximum charitable deduction the 70% dividends received deduction on the $4,000 dividends do not get deducted until after the charitable deductions are determined i.e. total income subject to the 10% max charitable contribution for corporations is $64,000 ($60k + $4k) $54,800 is the corporation’s taxable income for the year ($64,000 - $6,400 - ($4,000 x 70%)) $1,600 can be carried forward for 5 years $8,000 - $6,400

Question 75

true or false? usually a corporation can deduct the basis of ordinary income property if the property is gifted to charity

Answer 75

true

Question 76

true or false? generally a corporation can deduct the FMV of capital gain property if donated to a charity

Answer 76

true

Question 77

if the corporation donates use unrelated property then the deduction is limited to the _____

Answer 77

adjusted basis

Question 78

in determining a corporations AGI for eligible charitable income tax deductions, which deductions are not accounted for?

Answer 78

dividend received deduction net operating loss carryback capital loss carryback

Question 79

the maximum deductible loss for an activity is limited to ___________________________

Answer 79

the amount that the investor has at risk at the end of the current tax year

You must apply the at-risk rules before the passive activity rules discussed in the first part of this publication.

The at-risk rules limit your losses from most activities to your amount at risk in the activity. You treat any loss that’s disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If your losses from an at-risk activity are allowed, they’re subject to recapture in later years if your amount at risk is reduced below zero.

At-Risk Amounts

You’re at risk in any activity for:

1. The money and adjusted basis of property you contribute to the activity, and
2. Amounts you borrow for use in the activity if:
   
   1. You’re personally liable for repayment, or
   2. You pledge property (other than property used in the activity) as security for the loan.

Question 80

the rule that states the maximum deductible loss for an activity is limited to the amount that the investor has at risk at the end of the current tax year

Answer 80

at risk rule

The at-risk rules limit your losses from most activities to your amount at risk in the activity. You treat any loss that’s disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If your losses from an at-risk activity are allowed, they’re subject to recapture in later years if your amount at risk is reduced below zero.

A loss is the excess of allowable deductions from the activity for the year (including depreciation or amortization allowed or allowable and disregarding the at-risk limits) over income received or accrued from the activity during the year. Income doesn’t include income from the recapture of previous losses (discussed later, under Recapture Rule ).

Question 81

how do you determine the amount that is at risk?

Answer 81

total of cash/property invested - the debt the investor is personally liable for

Question 82

a liability for which the partner has no risk of economic loss if the liability is not satisfied by the partnership

Answer 82

nonrecourse debt

Question 83

true or false? if a loss is disallowed because of at-risk rules, the loss can be carried forward and taken in the first year the at-risk amount become positive

Answer 83

true

Question 84

in year 1 Bob invested $50k for a 20% interest in a partnership in which he was a material participant during the year. The partnership incurred a loss and Bob’s share was $75,000 how much of the loss can Bob claim this year? How much can he carry forward?

Answer 84

$50k $25k

Question 85

true or false? Passive losses may only be deducted against passive income

Answer 85

true

Question 86

a corporation where the primary economic activity is the performance of personal services by the owners of the corporation

Answer 86

personal service corporation

Question 87

closely held corporations may offset passive ____ against active ______ but not ________ income

Answer 87

losses ; income ; portfolio

Question 88

what are the 3 classifications of income and losses?

Answer 88

active, passive, and portfolio

Question 89

prevent the taxpayer from deducting any passive losses against active or portfolio income

Answer 89

passive loss limitations

Generally, passive activities include the following.

1. Trade or business activities in which you did not materially participate for the tax year.
2. Rental activities, regardless of your participation.

PALs not allowed in the current year are carried forward until they’re allowed either against passive activity income, against the special allowance, if applicable, or when you sell or exchange your entire interest in the activity in a fully taxable transaction to an unrelated party.

Generally, PALs are subject to other limitations (for example, basis and at-risk limitations) before they’re subject to the passive loss limitations. Once a loss becomes allowable under these other limitations, you must determine whether the loss is limited under the passive loss rules.

Question 90

wages, salaries, and other employee compensation are examples of ____ income

Answer 90

active

Question 91

interest, dividends, annuities, and royalties are examples of _____ income

Answer 91

portfolio

Passive activity income doesn’t include the following items:

1. Portfolio income. This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. It includes gain or loss from the disposition of property that produces these types of income or that’s held for investment. The exclusion for portfolio income doesn’t apply to self-charged interest treated as passive activity income.

Question 92

trade or business income when the taxpayer is a material participant is considered ____ income

Answer 92

active

Question 93

if there is a passive loss from activity 1 equal to $15k, a $30k passive loss from activity 2, and $10,000 of passive income from activity 3 equal to $10,000 , what is the taxpayer’s net passive loss?

Answer 93

$35,000 - calculated as follows: ($15,000 / $45,000) x $35,000 = $11,666.67 to activity 1 ($30,000 / $45,000) x $35,000 = $23,333.33 to activity 2

Question 94

which conditions create a passive activity?

Answer 94

a taxpayer does not materially participate the activity is rental activity

Question 95

true or false? if a taxpayer completes more than 500 hours of participation during the year then the activity is not passive

Answer 95

true

Question 96

true or false? if the individual’s participation in the activity constitutes substantially all of the participation in the activity of all individuals for the year then it is considered passive activity

Answer 96

false, it would be an active activity

Question 97

if a taxpayer participates in the activity for more than 100 hours and their participation is equal to or more than any other individual, is it consider passive activity or active?

Answer 97

active

Question 98

true or false? if a taxpayer materially participates in the activity in at least 5 out of the last 10 years then it is not considered a passive activity

Answer 98

true

Question 99

true or false? losses from a publicly traded partnership can only be used to offset income for that same company

Answer 99

true

Question 100

true or false? losses from a non publicly traded partnership can only be used to offset income for that same partnership

Answer 100

false, it can be used to offset income from other non publicly traded partnerships not just the same one that has the loss

Question 101

true or false? losses from non publicly traded partnerships can only be used offset income from other non publicly traded partnerships

Answer 101

true

Question 102

what is another term for publicly traded partnerships?

Answer 102

master limited partnerships

Question 103

Dana purchased an interest in a non publicly traded partnership that had income in the current year of $15,000. She also purchased interest in a master limited partnership with $20,000 of losses for the year. What are the tax consequences to Dana for the current year?

Answer 103

Dana will recognize $15k of passive income from the non publicly traded partnership she will not be allowed to deduct the $20k this year because losses from a publicly traded partnership (master limited partnership) can’t be used to offset the income from the non publicly traded partnership. She will have a $20,000 carry forward however.

Question 104

if real estate is greater than ____% of a taxpayer’s personal services in all trades or businesses for the year then it is not considered a passive activity

Answer 104

50%

Question 105

if the taxpayer performs greater than ___ hours of service in real property trades or business in which the tax payer materially participates then it is not considered passive activity

Answer 105

500 hours

Material Participation

• A trade or business activity isn’t a passive activity if you materially participated in the activity.

TESTS:

1. You participated in the activity for more than 500 hours.
2. Your participation was substantial all the participation in the activity of all individuals for the tax year, including the participation of individuals who didn’t own any interest in the activity.
3. You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year.
4. The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you didn’t materially participate under any of the material participation tests, other than this test. See Significant Participation Passive Activities , under Recharacterization of Passive Income, later.
5. You materially participated in the activity (other than by meeting this fifth test) for any 5 (whether or not consecutive) of the 10 immediately preceding tax years.
6. The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital isn’t a material income-producing factor.
7. Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year.
   
   1. You didn’t materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. Your participation in managing the activity doesn’t count in determining whether you materially participated under this test if:
      
      1. Any person other than you received compensation for managing the activity, or
      2. Any individual spent more hours during the tax year managing the activity than you did (regardless of whether the individual was compensated for the management services).

Question 106

individuals can deduct up to $_____ of rental real estate losses against active and portfolio income

Answer 106

$25,000

Question 107

to be eligible for the $25,000 deduction associated with rental real estate losses an individual must meet what two tests?

Answer 107

active participation in the activity (make management decisions) own 10% or more of all interests in the activity during the year

Question 108

the $25,000 rental real estate loss deduction is phased out between $____ and $____

Answer 108

$100k ; $150k

Question 109

what if your AGI is $110,000 how much of a rental real estate loss can you deduct?

Answer 109

$20,000 $25k - ($110k - $100k x 50%)

Question 110

what is Larry’s AGI based off the following info: Salary for managing an S corp = $50k Dividend income from stock = $1,000 loss from a 20% limited partnership interest = $4,000 loss from a 10% interest in an S corp, which he work full time managing one of the branches = $3,000

Answer 110

AGI = $48,000 the $3,000 loss from the limited partnership is a passive loss and cannot be deducted because limited partners aren’t materially participants

Question 111

Reggie is a high-income wage earner currently earning $180k annually. Recently, he has invested $30k for a 15% interest in a RELP as limited partner. Operations of the activity resulted in a loss of $300k of which Reggie’s share was $45k. Reggie does not have any passive income in the year. Can Reggie claim a deduction/loss this year? If so how much?

Answer 111

No he cannot claim a loss or deduction because he did not have passive income $15,000 of Reggie’s loss is suspended due to the at risk rule ($45k - $30k) The other $30k is suspended under the passive activity loss rules

Question 112

Mavis died owning an investment in a passive activity for which she had a basis of $50k. The FMV of her investment in the activity was $70k. She had suspended losses in the activity of $40k. What is the deduction allowed on Mavis’s final tax return?

Answer 112

$20k (FMV - basis)

Question 113

true or false? the personal exemption increases if over 65

Answer 113

false - TCJA eliminated it

The personal exemption was available to all taxpayers, with a couple of notable exceptions. If someone else could claim you as a dependent, you couldn’t claim the personal exemption. Note that it doesn’t matter if someone else actually did claim you. What matters is whether or not someone could claim you.

You also may not be able to claim the entire personal exemption depending on your adjusted gross income (AGI). The personal exemption begins to phase out at a certain income threshold. For tax year 2017, the exemption reduced for single filers who had an AGI above $262,500. The exemption phased out entirely if your AGI was over $384,000. The exemption started to phase out for joint filers who had an AGI of $313,800. It phased out entirely if your AGI was above $436,300.

Question 114

true or false? the standard deduction increases if over 65

Answer 114

true

Question 115

what is the standard deduction for a 55 year old who is also blind, based on 2017?

Answer 115

$7,900 $6,350 + $1,550

Question 116

what is the standard deduction for a 68 year old couple who are both blind, based on 2017?

Answer 116

$17,700 $12,700 + (4 x $1,250)

Question 117

what is the age test for qualifying a child as a dependent?

Answer 117

To claim your child as your dependent, your child must meet either the qualifying child test or the qualifying relative test:

1. To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a “student” younger than 24 years old as of the end of the calendar year.
2. There’s no age limit if your child is “permanently and totally disabled” or meets the qualifying relative test.

In addition to meeting the qualifying child or qualifying relative test, your child must also meet all of the other tests to be your dependent:

1. Dependent taxpayer test
2. Citizen or resident test, and
3. Joint return test

Question 118

what is the support test for qualifying a child or relative as a dependent?

Answer 118

must not provide 50% of own support

Question 119

true or false? only one person can claim a dependency exemption for an individual

Answer 119

true

Question 120

who gets to claim a child as a dependent if the child lives with both parents an equal amount of time?

Answer 120

the parent with the higher AGI

Question 121

who gets to claim a child as a dependent if neither person is the child’s parent?

Answer 121

person with the higher AGI

Question 122

Erin and Brian are both age 50 and file a joint return for the current year. They provided all the support for their 19 year old unmarried daughter, who had no income and lived with them for the entire year. Their 23 year old son, a full time student at a university had $5,000 in income and provided 70% of his own support. How many exemptions can they Erin and Brian claim?

Answer 122

3 one for each of them and one for their daughter no exemptions for son because he provided 70% of his own support

Question 123

Dennis age 50, filed a joint return with his wife, Kelly, age 24. Their son Derek was born December 16 of the taxable year. Dennis provided 60% of the support for his 73 year old widowed mother until May 1 when she died. His mother’s only income was from SSI totaling $4k which she used $1k of for her own support. How many exemptions can Dennis and Kelly claim?

Answer 123

4

Question 124

Andre provided more than one half of the support for his cousin, his niece, and his foster parent. None of them lived in Andre’s household. None of these relatives had any income nor did any of them file an individual or joint return. All of these relatives are US citizen . Which of the people is considered a qualifying relative to Andre?

Answer 124

only the niece

Four tests must be met for a person to be your qualifying relative. The four tests are:

1. Not a qualifying child test
   
   1. Unlike a qualifying child, a qualifying relative can be any age. There is no age test for a qualifying relative.
2. Member of household or relationship test - To meet this test, a person must either:
   
   1. Live with you all year as a member of your household, or
   2. Be related to you in one of the ways listed under Relatives who don’t have to live with you:
      1. Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.
      2. Your brother, sister, half brother, half sister, stepbrother, or stepsister.
      3. Your father, mother, grandparent, or other direct ancestor, but not foster parent.
      4. Your stepfather or stepmother.
      5. A son or daughter of your brother or sister.
      6. A son or daughter of your half brother or half sister.
      7. A brother or sister of your father or mother.
      8. Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
3. Gross income test
   
   1. To meet this test, a person’s gross income for the year must be less than $4,150.
4. Support test
   
   1. To meet this test, you generally must provide more than half of a person’s total support during the calendar year.

Question 125

Claudia age 15 has lived with her older sister Nancy age 19 for the past two years . There are no parents living in the home. Nancy provides all of Claudia’s support. Can Nancy claim Claudia as a dependent?

Answer 125

yes

Question 126

Gary and Lori are the parents of Neil, age 6. They provide 100% of Neil’s support. Under the divorce settlement entered into in 2009, Lori is the custodial parent. Gary is required by the same agreement to provide health insurance to Neil through his employer. Who can claim Neil as a dependent?

Answer 126

Only Lori Gary can claim Neil as a dependent child for medical insurance purposes

Question 127

true or false? if you divorce your spouse you can never claim your former brother/sister in law as dependent

Answer 127

false, you can. Death/Divorce do not affect your ability to claim them as a dependent

Question 128

for 2017 what is the standard deduction for people who can be claimed as a dependent by another in the same year?

Answer 128

the greater of $1,050 or earned income plus $350

Question 129

Andrea is claimed as a dependent on her parents’ return. She earned $2,900 and received dividend income of $2,000. What is Andrea’s standard deduction for the year?

Answer 129

$3,250 $2,900 + $350

Question 130

what are the five filing status categories?

Answer 130

single MFJ MFS Head of household qualifying widow(er) with dependent child also called surviving spouse

Question 131

an unmarried, separated, or divorced individual who does not qualify for another status must file as a _____ taxpayer

Answer 131

single

Question 132

true or false? if a married couple files as married filing separately they can still take the credit for child and dependent care expenses

Answer 132

fasle

Question 133

true or false? if a married couple files as married filing separately they can still take the earned income credit

Answer 133

false

To qualify for EITC you must have earned income from working for someone or from running or owning a business or farm and meet basic rules. And, you must either meet additional rules for workers without a qualifying child or have a child that meets all the qualifying child rules for you.

For 2018, the maximum EITC amount available is $6,444 for taxpayers filing jointly who have 3 or more qualifying children

Income Limits During 2018:

1. Your tax year investment income must be $3,500 or less for the year.
2. Your total earned income must be at least $1.
3. Both your earned income and adjusted gross income (AGI) must be no more than:
   
   1. Zero Qualifying Children
      
      1. Single = $15,270
      2. MFJ = $20,950
   2. One Qualifying Child
      
      1. Single = $40,320
      2. MFJ = $46,010
   3. Two Qualifying Children
      
      1. Single = $45,802
      2. MFJ = $51,492
   4. Three or More Qualifying Children
      
      1. Single = $49,194
      2. MFJ = $54,884

Question 134

true or false? if a married couple files as married filing separately they can still take education credits

Answer 134

false

When you choose not to file jointly, you limit or altogether forgo several tax breaks and deductions including:

1. The child and dependent care tax credit
2. The adoption credit
3. The Earned Income Credit
4. Tax-free exclusion of U.S. bond interest
5. Tax-free exclusion of Social Security benefits
6. The credit for the elderly and disabled
7. The deduction for college tuition expenses
8. The student loan interest deduction
9. The American Opportunity Credit and Lifetime Learning Credit for higher education expenses
10. The deduction of net capital losses
11. Traditional IRA deductions
12. Roth IRA contributions

Question 135

unmarried individuals who maintain a household for a qualifying person for more than one half of the tax year

Answer 135

Head of Household

• Generally, you may claim head of household filing status on your tax return only if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependent(s) or other qualifying individuals.

Dependents explains the difference between a qualifying child and a qualifying relative. Other topics include the social security number requirement for dependents, the rules for multiple support agreements, and the rules for divorced or separated parents.

Question 136

if filing as head of household does an unmarried child have to be claimed as a dependent to be a qualified person

Answer 136

no

Question 137

if filing as head of household does a married child have to be claimed as a dependent to be a qualified person

Answer 137

yes

Question 138

if filing as head of household does a parent have to be claimed as a dependent to be a qualified person?

Answer 138

yes

Question 139

which of the following qualified persons does not have to live in the household for more that 50% of the year to still be a qualified person under head of household filing: single child married child other relative parents

Answer 139

parents only can live in another home for more than 50% of the year

Question 140

John’s wife died in 2015. John has not remarried and for 2016 and 2017 he maintained a home for himself and his dependent child. Can John file a joint return for years 2016 and 2017? What about 2018?

Answer 140

yes because he is considered a qualifying widower with a dependent child For 2018 he could file as head of household because the qualifying widower with dependent child filing only lasts for two years

Question 141

true or false? if you are single individual and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes

Answer 141

true

Question 142

true or false? if you are head of household and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes

Answer 142

true

Question 143

true or false? if you are surviving spouse and your income does not exceed the exemption amount plus the applicable standard deduction then you still have to file taxes

Answer 143

false, you do not have to file

Question 144

true or false? if you are married and filing jointly and your income does not exceed the exemptions amount plus the applicable standard deduction then you do not have to file taxes

Answer 144

true

Question 145

in 2017, a single individual who is claimed by a parent as a dependent has earned income of only $3,900. Would this person need to file a return?

Answer 145

no, because earned income would be less than the standard deduction amount of $4,250 ($3,900 + $350)

Question 146

In 2017, a single, blind individual who is claimed as dependent by a parent has unearned income of $1,200. Does this individual need to file a return?

Answer 146

no, because gross income does not exceed the standard deduction of $2,600 ($1,050 + $1,550) $1,050 is being used because it is greater than the earned income which is $0. $1,550 is the additional standard deduction for being blind

Question 147

In 2017, a single individual claimed as a dependent by a parent has earned income of $2,000 and unearned income of $1,800. Does this individual need to file a return?

Answer 147

Yes, because gross income is more than the applicable standard deduction gross income = $3,800 standard deduction = ($2,000 +$350) = $2,350

Question 148

which form should a taxpayer use to file taxes if taxable income is less than $100k and no dependents or adjustments to income are claimed?

Answer 148

1040EZ

For Tax Year 2018, you will no longer use Form 1040-EZ, but instead use the redesigned Form 1040.

Question 149

which form should a taxpayer use to file taxes if the only adjustments to income are for deductible IRA contributions and student loan interest?

Answer 149

1040A

Question 150

what form allows a tax payer to file an extension?

Answer 150

4868

Question 151

dollar for dollar reductions of the income tax liability of the taxpayer

Answer 151

tax credits

Question 152

tax credits that are paid to the taxpayer even if the amount exceeds the taxpayer’s tax liability

Answer 152

refundable credits

Question 153

tax credits that at best reduce a taxpayer’s tax liability to zero

Answer 153

nonrefundable tax credits

Question 154

true or false? the credit for elderly or disabled is a nonrefundable credit

Answer 154

true

Question 155

this credit applies to taxpayers 65 and older or those under 65 who are retired an permanently or totally disabled

Answer 155

credit for elderly or disabled

Question 156

if the tax in the foreign jurisdiction is more than the US tax, then taking the tax credit is generally _______ advantageous

Answer 156

more

Question 157

true or false? a taxpayer can take advantage of both the foreign tax credit and the foreign earned income exclusion

Answer 157

false

Question 158

true or false? the adoption credit is a nonrefundable credit

Answer 158

true

Question 159

the child tax credit is reduced $____ for every $________ above MAGI threshold

Answer 159

$50 ; $1,000

Question 160

true or false? room and board are qualifying expenses under the american opportunity tax credit

Answer 160

false

Question 161

____% of the american opportunity tax credit is refundable

Answer 161

40%

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

To be eligible for AOTC, the student must:

1. Be pursuing a degree or other recognized education credential
2. Be enrolled at least half time for at least one academic period* beginning in the tax year
3. Not have finished the first four years of higher education at the beginning of the tax year
4. Not have claimed the AOTC or the former Hope credit for more than four tax years
5. Not have a felony drug conviction at the end of the tax year
   
   1. *Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. The schools determine the academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

Question 162

the child tax credit is a _____ credit

Answer 162

refundable

Question 163

under the lifetime learning credit a taxpayer may claim ____% of qualified expenses up to $_____

Answer 163

20% ; $10,000

Max Lifetime Learning Credit = $2,000

Who?

1. You, your dependent or a third party pay qualified education expenses for higher education
2. You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution
3. The eligible student is yourself, your spouse or a dependent you listed on your tax return

Eligible Student

1. Be enrolled or taking courses at an eligible educational institution
   
   1. An eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education.
2. Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
3. Be enrolled for at least one academic period* beginning in the tax year
   
   1. *Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. Academic periods are determined by the school. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

Income Limits

1. Single = $57,000 and $67,000
2. MFJ = $114,000 and $134,000

The LLC is not refundable

Question 164

true or false? both the lifetime learning credit and american opportunity tax credit can be claimed if married filing separately

Answer 164

false, neither can be claimed

In rare situations, filing separately may help you save on your tax return.

For example, if you or your spouse has a large amount of out-of-pocket medical expenses to claim and since the IRS only allows you to deduct the amount of these costs that exceeds 10% of your adjusted gross income (AGI) in 2017 and 2018, it can be difficult to claim most of your expenses if you and your spouse have a high AGI.

Filing separate returns in such a situation may be beneficial if it allows you to claim more of your available medical deductions by applying the threshold to only one of your incomes.

Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Question 165

assumes that depreciation is uniform throughout the useful life of the assets

Answer 165

straight line depreciation

Question 166

how to calculate straight line depreciation

Answer 166

(Cost - residual value) / useful life

Question 167

Under MACRS depreciation residential real estate has a depreciation life of ____ years and non residential real estate has a depreciation life of ____ years

Answer 167

27.5 years ; 39 years

Question 168

the maximum write-off under section 179 for tangible personal property used in a trade or business is $__________ for 2017

Answer 168

$510,000

Question 169

In 2017 ABC corporation purchased and placed in service a piece of machinery costing $25,000. Assuming ABC corp had taxable income of $22,000 (without regard to section 179 expense) what would be the maximum section 179 expense that ABC could take for 2017?

Answer 169

$22,000 would be the maximum section 179 expense ABC could take because you can’t take more than your taxable income. ABC can carry forward $3,000

Question 170

In 2017, Betty Corp purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,040,000. What portion of the cost may Betty elect to treat as an expense rather than as a capital expenditure assuming net taxable income of $4million? What is the new basis of the purchased machinery?

Answer 170

$500,000 calculated as follows $510,000 is the normal maximum write off, but because the equipment was purchased for more than $2,030,000 the write off gets reduced by the excess between the purchase price and $2,030,000 $510,000 - ($2,040,000 - $2,030,000) new basis = $2,040,000 - $500k = $1,540,000

Question 171

Certain intangible assets are amortized over ____ years (copyrights, trademarks, patents, etc.)

Answer 171

15 years

Question 172

Maria acquired a business on July 1 of the current year. The purchase price included a copyright valued at $30k. How much can Maria claim as amortization this year and in following years?

Answer 172

This year = 6 months of having copyright or 50% of the year x $30k / 15 = $1k Following years = $30k / 15 = $2k

The IRS designates certain assets as intangible assets under Section 197 of the Internal Revenue Code.

For purposes of Section 197, intangible assets include:

• But the IRS says you cannot amortize assets in categories 1 through 8 if you created these assets, unless “you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business.”

1. Goodwill
2. Going concern value
3. Workforce in place (that is, current employees, including their experience, education, and training)
4. Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers
5. A patent, copyright, formula, process, design, pattern, know-how, format, or similar item
6. A customer-based intangible, including customer base and relationships with customers
7. A supplier-based intangible (the value of future purchases due to relationships with vendors)
8. Any item similar to items (3) through (7)
9. A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals)
10. An agreement or covenant not to compete or non-compete agreement entered into in connection with the acquisition of an interest in a trade or business; and
11. A franchise, trademark, or trade name
12. A contract for the use of, or a term interest in, any item in this list

Non-Applicable Intangible Assets:

1. Certain intangible assets are NOT considered to be Section 197 intangibles, and thus may not be amortized over 15 years:
   
   1. Copyrights and patents, interests in films, sound recordings, videotapes, books, or other similar property. Exception: If any of these intangibles are acquired as part of a business purchase, they may be considered Section 197 intangibles.
   2. Interests in a corporation, partnership, trust, or estate; in land or in certain financial contracts
   3. Sports franchises
   4. Some computer software
   5. Some corporate transaction costs.
   6. Disclaimer: This article is provided for general information purposes only, and it is not intended to be tax or legal advice. Be sure to consult a tax professional before amortizing intangibles.

Question 173

depletion method in which the asset basis is divided by the estimated total number of recoverable units of the asset and then multiplied by the number of units sold

Answer 173

cost depletion

Question 174

depletion method a statutory percentage is applied to the gross income from the property limited to 50% of AGI

Answer 174

percentage depletion

Taxable income limit.

• The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction.

Percentage depletion is a tax deduction that assigns a set percentage of depletion to the gross income derived from extracting fossil fuels, minerals, or other nonrenewable resources from the earth. Percentage depletion is provided as an incentive for drillers and investors to develop domestic mineral and energy production.

Question 175

Cole owns a sulfur mine that had 100,000 total estimated tons when he purchased it for $2million. In the current year 20,000 tons were extracted and 18,000 tons were sold. The statutory depletion % for sulfur is 22%. Gross income for the year was $1million. How much depletion deduction can Cole take?

Answer 175

under cost method he can take $360k calculated as follows: ($2million / 100k) x 18,000 = $360k under the percentage depletion method he can take $220k calculated as follows: $2million x 22% = $220k

Question 176

Peggy a cash-basis taxpayer has the following items of income for the current year: salary = $40k bonus check issued and available at payroll office =$5k Borrowed $10k on home equity loan original issue discount bond accrual amount = $2k US Savings bond that increased in redemption value = $200 (last year she elected to include this redemption value increase in her income) what is Peggy’s gross income?

Answer 176

$47,200

Question 177

true or false? for both cash basis and accrual basis tax payers an increase in redemption value of a original issue discount must be included in income in the year the increase occurs

Answer 177

true

Question 178

requires reporting of expenses when incurred and income when earned for any single tax year

Answer 178

accrual method

Question 179

method that states that expenses do not have to be paid to be deductible nor does income have to be received to be taxable

Answer 179

accrual method

Question 180

In Year 1, ABC Corp entered into a contract to build a hotel that will be completed by December year 2. The contract price was $2million and the estimated cost of construction was $1million. During year 1, actual costs incurred were $600k. In year 2, the hotel was completed at a total cost of $1.1 million. What net income will ABC corp report for years 1 and 2?

Answer 180

Year 1 = $2 million x ($600k / $1 million) - $600k = $600k Year 2 = $2 million - $1.2 million - $500 = $300k

Question 181

allows the taxpayer to defer revenue recognition until the contract is completed

Answer 181

completed contract method

This contrasts with the cash and accrual methods of accounting.

This accounting method is frequently used in the construction industry or other industries whose businesses involve long-term contracts.

The completed contract method is a unique accounting method that allows all revenue and expense recognition to be deferred until the completion of a contract. This type of accounting method has benefits and disadvantages for a firm’s balance sheet. On the one hand, because revenue recognition is postponed, tax liabilitiesare also postponed. Expense recognition, which can reduce taxes, is also delayed. However, since multiple contracts may finish at once and create a large surge of revenue and expense, this type of accounting method causes fluctuations in the balance sheet. These fluctuations can be seen as a sign of risk and business inconsistency by analysts if they are not aware of the accounting method being used.

Question 182

if the total amount of property placed in service exceeds $_____ the $1,000,000 section 179 allowance is reduced dollar for dollar…which makes the maximium amount of dollar value of property placed in service at $______________.

Answer 182

$2,500,000 with maximum amount of $3,500,000

So what types of business property does Section 179 apply to? The IRS has two general requirements:

1. The property (called “qualified property”) must be “tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business.” Vehicles, and (starting in 2018) land and buildings are included
2. The property must be purchased and put into service in the year in which you claim the deduction. Putting an asset into service means that you have it set up and working and you are using it in your business. Buying a piece of property and then letting it sit and gather dust doesn’t count.

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.