- What amount of the §179 deduction carries over to 2026?
Answer: $500,000
IRC § 179(b)(1), (b)(2) and (b)(3). For 2025 the § 179 dollar limit is $2,500,000, reduced dollar for dollar by the cost of § 179 property placed in service during the year in excess of $4,000,000. The corporation placed $4,200,000 in service, so its limit is $2,500,000 - $200,000 = $2,300,000, and it elects to expense that amount. The deduction itself may not exceed business taxable income computed without regard to the § 179 deduction, which is $1,800,000. It deducts $1,800,000 for 2025, and $2,300,000 - $1,800,000 = $500,000 carries over to 2026. Choice A is correct. Choice B ignores the taxable-income limitation. Choice C ignores the investment limitation and compares the unreduced $2,500,000 with $1,800,000. Choice D is the amount deducted for 2025, not the carryover.
- A taxpayer acquired a section 197 intangible on March 15, 2025, for $180,000 and placed it in service on the same date. Which of the following is correct regarding the amortization of the intangible for 2025 and 2026?
Answer: The 2025 amortization deduction is $10,000, and the 2026 deduction is $12,000.
IRC § 197(a). A section 197 intangible is amortized ratably over 180 months beginning with the month of acquisition, and the month of acquisition counts as a full month. The $180,000 basis divided by 180 months yields $1,000 per month. Because the intangible was acquired on March 15, 2025, amortization runs from March 2025, so the 2025 deduction is 10 months × $1,000 = $10,000, and the 2026 deduction is 12 months × $1,000 = $12,000. Choice A misstates the convention: section 197 uses no mid-month convention, so applying the real-property rule would produce only 9.5 months, or $9,500, in 2025. Choice B misstates the proration: it treats the intangible as held for a full 12 months in the acquisition year, ignoring that the acquisition occurred in March. Choice D misstates the convention: the MACRS half-year convention for personal property does not apply to section 197 intangibles and would produce only 6 months, or $6,000, in 2025.
- On July 1, 2025, a calendar-year corporation purchased all the assets of an existing business. The purchase price allocation included $600,000 of tangible equipment, $240,000 for a customer list, $120,000 for a covenant not to compete with a stated term of three years, $90,000 of goodwill, and $60,000 of land. What amount of §197 amortization may the corporation deduct for 2025?
Answer: $15,000
Choice A is correct. Under IRC § 197(a) and (d), goodwill, customer lists, and covenants not to compete entered into in connection with the acquisition of a business are §197 intangibles amortized ratably over 15 years beginning with the month of acquisition. The eligible intangibles total $450,000 ($240,000 + $120,000 + $90,000). Annual amortization is $30,000, or $2,500 per month. Because the acquisition occurred on July 1, 2025, six months of amortization are allowed for 2025: $2,500 × 6 = $15,000. Choice B amortizes a full 12 months instead of the six months from the July acquisition. Choice C improperly amortizes the covenant over its three-year stated term; a covenant not to compete acquired in connection with a business acquisition is a §197 intangible and must be amortized over 15 years. Choice D includes the tangible equipment in the §197 amortization; equipment is depreciable property, not a §197 intangible.
- A calendar-year corporation placed $4,500,000 of new 7-year manufacturing equipment in service during 2025, and also placed in service a newly constructed storage warehouse, used in its business, costing $900,000. The corporation does not claim bonus depreciation. For purposes of the §179 taxable-income limitation, the corporation's taxable income, computed without regard to the §179 deduction, was $2,400,000. What is the maximum §179 deduction the corporation may claim for 2025?
Answer: $2,000,000
Choice B is correct. Under IRC § 179(b), the 2025 §179 dollar limit is $2,500,000, reduced by the amount by which §179 property placed in service during the year exceeds $4,000,000. The equipment is §179 property; the storage warehouse is not §179 property because it is a building, not tangible personal property or qualified real property as defined for §179. The cost of §179 property is therefore $4,500,000. The excess over $4,000,000 is $500,000, so the dollar limit becomes $2,000,000. This amount is below the $2,400,000 taxable-income limitation, so no further reduction applies. Choice A results from counting the warehouse in the phase-out calculation, which is improper because the warehouse is not §179 property. Choice C treats the taxable-income figure as the amount deductible rather than as a ceiling, ignoring the phase-out-limited §179 ceiling of $2,000,000. Choice D uses the unadjusted $2,500,000 limit and ignores the phase-out.
- Which of the following is correct regarding the bonus depreciation the corporation may claim for this equipment?
Answer: The corporation may elect to claim bonus depreciation at a 40% rate instead of the 100% rate for the first tax year ending after January 19, 2025.
IRC § 168(k), as amended by the One Big Beautiful Bill Act. Qualified property acquired after January 19, 2025, generally qualifies for 100% bonus depreciation, but the statute provides an election to claim a 40% bonus rate (60% for long-production-period property and certain aircraft) instead of 100% for the first tax year ending after January 19, 2025. Choice A is wrong because the election out of bonus depreciation for a class of property remains available for property acquired after January 19, 2025. Choice B misstates the election as allowing any rate between 40% and 100%; the election is to a fixed 40% rate (60% for certain property). Choice D is wrong because the 100% rate depends on the acquisition date, not the placed-in-service date; the July 4, 2025, date relates to qualified production property under §168(n), not to this equipment.
- What is the taxpayer's maximum first-year depreciation deduction for the SUV for 2025?
Answer: $41,024
IRC § 179(b)(6) and IRC § 168(k); IRC § 280F(d)(5). A vehicle with a gross vehicle weight rating over 6,000 pounds is not a passenger automobile, so the luxury automobile dollar caps do not apply. The §179 deduction for a sport utility vehicle is limited to $31,300, so the taxpayer claims $31,300 of §179. The SUV was acquired before January 20, 2025, because the written binding contract was entered into in December 2024, so the bonus depreciation rate is 40%: ($50,000 − $31,300) × 40% = $7,480. The remaining basis of $11,220 is depreciated under MACRS as 5-year property using the half-year convention: $11,220 × 20% = $2,244. The total is $31,300 + $7,480 + $2,244 = $41,024. Choice A treats the SUV as a passenger automobile subject to the $20,200 first-year luxury cap. Choice C omits the regular MACRS deduction on the remaining basis, giving $38,780. Choice D applies the 100% bonus rate, which is available only for property acquired after January 19, 2025.
- Which of the following is correct regarding the depreciation limits for a passenger automobile placed in service in 2025?
Answer: If the taxpayer claims the bonus depreciation deduction, the maximum first-year depreciation deduction for the automobile is $20,200.
IRC § 280F(a)(1). The annual depreciation deduction for a passenger automobile is limited by a dollar cap. For an automobile placed in service in 2025, the first-year cap is $20,200 if the taxpayer claims bonus depreciation and $12,200 if the taxpayer elects out of bonus depreciation; the second-year cap is $19,600. Choice D is correct: with bonus depreciation, the first-year deduction cannot exceed $20,200. Choice B misstates the cap for a taxpayer who elects out of bonus depreciation: the first-year limit is $12,200, not $20,200. Choice C misstates the year-2 cap: the second-year limit is $19,600, not $20,200. Choice A misstates the scope of the cap: the $280F limit applies to the total depreciation deduction for the year, including regular MACRS depreciation, any section 179 deduction, and bonus depreciation.
- What is the taxpayer's maximum depreciation deduction for the automobile for 2025?
Answer: $14,140
IRC § 280F(a)(1)(A). For a passenger automobile placed in service in 2025, the first-year depreciation deduction, including bonus depreciation, is limited to $20,200. Because business use exceeds 50%, the automobile is eligible for bonus depreciation, and because it was acquired after January 19, 2025, the 100% bonus rate applies; the cap still applies. The deduction is limited to the business-use percentage of the cap: $20,200 × 70% = $14,140. Choice A applies the full cap without reducing it for the 30% personal use. Choice B uses the $12,200 cap that applies when bonus depreciation is not claimed and multiplies it by 70%. Choice C is 70% of the $60,000 cost, ignoring the luxury automobile cap.
- What is the corporation's amortization deduction for 2025 with respect to these purchased intangibles?
Answer: $5,500
IRC § 197(a). Goodwill, a customer list, and a covenant not to compete entered into in connection with the purchase of a trade or business are §197 intangibles. They are amortized ratably over 180 months, beginning with the month of acquisition; no half-year or mid-month convention applies. The total basis is $330,000, and the monthly amortization is $330,000 ÷ 180 = $1,833.33. Because the intangibles were acquired in October, three months of amortization are allowable in 2025: $1,833.33 × 3 = $5,500. Choice B starts amortization in the month following acquisition, allowing only two months. Choice C amortizes the covenant over its stated three-year term instead of treating it as a §197 intangible. Choice D applies a half-year convention to the 180-month amortization period.
- Which of the following is correct regarding the additional first-year depreciation (bonus depreciation) deduction for qualified property placed in service in 2025?
Answer: Qualified property acquired after January 19, 2025 and placed in service after that date is eligible for a 100% additional first-year depreciation deduction.
IRC § 168(k). Choice B is correct: qualified property acquired after January 19, 2025 and placed in service after that date is eligible for a 100% additional first-year depreciation deduction. Choice A misstates the transition rule because 2025 property is not limited to a 40% deduction; post-January 19, 2025 acquisitions generally qualify for 100%, and certain pre-January 20, 2025 property qualifies for 60%. Choice C misstates the rate for pre-January 20, 2025 property generally: the general rate is 40%, and 60% applies only to long-production-period property and certain aircraft. Choice D misstates the used-property rule: used qualified property acquired from an unrelated party and not used by the taxpayer before acquisition can qualify for the 100% deduction.
- What is the taxpayer's regular MACRS depreciation deduction for this equipment for 2025?
Answer: $46,000
IRC § 168(d)(3). The mid-quarter convention applies when more than 40% of the aggregate basis of all property placed in service during the year is placed in service during the last three months of the year. Here, $100,000 of the $240,000 total basis (41.67%) was placed in service in December, so the mid-quarter convention applies to all three assets. For 5-year property under the mid-quarter convention, the first-year depreciation rates are 35% for first-quarter property, 15% for third-quarter property, and 5% for fourth-quarter property: $100,000 × 35% = $35,000; $40,000 × 15% = $6,000; $100,000 × 5% = $5,000; total $46,000. Choice A uses the half-year convention for all property, ignoring the 40% test, and produces $240,000 × 20% = $48,000. Choice B applies the mid-quarter rate only to the December asset and the half-year rate to the other assets: $140,000 × 20% + $100,000 × 5% = $33,000. Choice C uses the 25% second-quarter rate for the August asset: $35,000 + $10,000 + $5,000 = $50,000.
- A calendar-year corporation placed the following new 7-year equipment in service during 2025: Machine A, costing $2,400,000, was acquired and placed in service on March 1, 2025. Machine B, costing $1,000,000, was placed in service on November 1, 2025; it had been acquired under a written binding contract signed on November 15, 2024. No §179 election is made, and the corporation does not make an election to use a reduced bonus percentage. What amount of bonus depreciation may the corporation claim for 2025?
Answer: $2,800,000
Choice C is correct. Under IRC § 168(k), for property acquired after January 19, 2025 and placed in service after that date, bonus depreciation is 100%. Machine A was acquired and placed in service on March 1, 2025, so its bonus is $2,400,000. For property acquired before January 20, 2025 and placed in service in 2025, the bonus allowance is 40% for this property. The acquisition date of Machine B is the date of the written binding contract, November 15, 2024, so Machine B's bonus is 40% of $1,000,000, or $400,000. Total bonus depreciation is $2,800,000. Choice A applies the 40% rate to both machines, but only Machine B is 40% property. Choice B omits Machine B; it still qualifies for the 40% allowance because it was placed in service in 2025. Choice D applies 100% to both machines, ignoring the binding-contract date for Machine B.
- Which of the following is correct regarding the 2025 tax treatment of the automobile?
Answer: The taxpayer must recapture the excess of prior depreciation over the straight-line ADS amount as ordinary income and use the straight-line method for 2025.
IRC §§ 280F(b)(2) and (b)(3). A passenger automobile is listed property; when business use falls to 50% or less, the taxpayer recaptures as ordinary income the excess of the depreciation previously allowable—including the §179 and bonus depreciation—over the depreciation that would have been allowable under the straight-line ADS method. The automobile must then be depreciated under the straight-line method for 2025 and later years, based on the remaining business-use percentage. Choice A wrongly keeps the 200% declining balance method. Choice B is wrong because depreciation is still allowable on the 40% business-use portion under the straight-line method, and recapture does not reduce basis. Choice D is wrong because no deemed sale occurs when business use merely drops below 50%.
- Which of the following is correct regarding the section 179 expensing election for 2025?
Answer: A calendar-year taxpayer may deduct up to $2,500,000, reduced dollar-for-dollar (but not below zero) by the cost of section 179 property placed in service during the taxable year in excess of $4,000,000.
IRC § 179(b)(1) and (b)(2). For taxable years beginning after December 31, 2024, the section 179 dollar limitation is $2,500,000 and the investment limitation is $4,000,000 (One Big Beautiful Bill Act § 70306); the dollar limit is reduced dollar-for-dollar (but not below zero) by the cost of section 179 property placed in service during the year in excess of the investment limit. A calendar-year 2025 taxpayer therefore applies the $2,500,000 limit to all qualifying property placed in service during the year. Choice B misstates the applicable limits: $1,250,000 and $3,130,000 are the pre-OBBBA figures published in Rev. Proc. 2024-40, which do not apply to taxable years beginning after December 31, 2024. Choice C misstates the effective-date rule: a fiscal-year taxpayer whose taxable year began before January 1, 2025 uses the old limits for that entire taxable year, even though part of the year falls in 2025. Choice D misstates the acquisition requirement: the January 19, 2025 date is the acquisition cutoff for the 100% bonus depreciation allowance under IRC § 168(k); section 179 imposes no similar acquisition-date condition.
- A calendar-year sole proprietor placed $4,900,000 of new seven-year machinery in service during 2025. All of the property is section 179 property. Her taxable income from the active conduct of her business, before any section 179 deduction, is $2,000,000. She does not claim bonus depreciation. What is the maximum section 179 deduction she may claim for 2025?
Answer: $1,600,000
Choice A is correct. Under IRC §179(b), for tax years beginning in 2025 the section 179 expensing limit is $2,500,000, reduced dollar-for-dollar by the cost of section 179 property placed in service during the year that exceeds $4,000,000. Because $4,900,000 of section 179 property was placed in service, the reduction is $900,000, leaving $1,600,000 as the maximum section 179 deduction. Her taxable income from the active conduct of her business, $2,000,000, exceeds $1,600,000, so the taxable-income limit in §179(b)(3) does not bind. Choice B ignores the phase-out. Choice C uses the pre-OBBBA 2025 dollar limit of $1,250,000 rather than the OBBBA-increased 2025 figure of $2,500,000. Choice D applies the taxable-income limit but omits the phase-out reduction and is therefore too high.
