- Which statement correctly describes the treatment of the robot for 2025?
Answer: The robot qualifies for only 40% bonus depreciation because it was acquired before January 20, 2025.
The correct answer is Choice B. Under IRC § 168(k), the 100% allowance applies to qualified property placed in service after January 19, 2025, but only if the property was acquired after that date. A written binding contract date generally fixes the acquisition date. Because the contract was signed before January 20, 2025, the robot is pre-January 20 property, and the 40% rate applies when it is placed in service in 2025. Choice A treats the placed-in-service date as sufficient; Choice C incorrectly denies all bonus depreciation; Choice D reverses the controlling date.
- What is the correct treatment of the proprietorship loss on his 2025 return?
Answer: $313,000 is deductible in 2025, and the remaining $97,000 is treated as a net operating loss carryover to 2026.
The correct answer is Choice D. Under IRC § 461(l), an individual's excess business loss for 2025 is the excess of aggregate business deductions over aggregate business gross income plus the applicable threshold. For a single taxpayer the threshold is $313,000, so the excess here is $410,000 minus $313,000, or $97,000. That excess is not allowed for 2025 and is carried over as a net operating loss. Wages are not business gross income for this purpose. Choice A ignores the threshold; Choice C wrongly treats the carryover as permanently lost; Choice B applies an incorrect threshold and amount.
- A calendar-year C corporation placed the following assets in service during the first three quarters of 2025: (1) new robotic equipment, cost $1,000,000, acquired under a written binding contract entered into in July 2025 and placed in service in September 2025; (2) new packaging equipment, cost $500,000, acquired under a written binding contract entered into in June 2024 and placed in service in March 2025; and (3) used office furniture, cost $600,000, purchased from an unrelated party and placed in service in August 2025. The corporation has taxable income of $3,000,000 before any cost recovery deduction, will make a §179 election only on the used office furniture, does not elect out of bonus depreciation, and does not make the 40% bonus election for property acquired after January 19, 2025. No mid-quarter convention applies. The packaging equipment is 5-year property. What is the maximum total §179 deduction plus depreciation deduction for 2025?
Answer: $1,860,000
IRC §§ 168(k) and 179. The robotic equipment was acquired under a written binding contract entered into after January 19, 2025, and placed in service after that date, so it receives 100% bonus depreciation: $1,000,000. The packaging equipment was acquired under a contract entered into before January 20, 2025, so it receives only 40% bonus depreciation: 40% × $500,000 = $200,000, leaving $500,000 − $200,000 = $300,000 of basis. Regular MACRS for 5-year property under the half-year convention is 20% of $300,000, or $60,000. The used office furniture is bonus-eligible, because used property acquired from an unrelated party qualifies for bonus depreciation under IRC § 168(k)(2)(E)(ii). Bonus depreciation applies only to the basis left after the § 179 deduction, however, and the election to expense the full $600,000 is within the 2025 § 179 limit of $2,500,000 and the $4,000,000 phase-out threshold, so no basis remains for bonus. The total is $1,000,000 + $200,000 + $60,000 + $600,000 = $1,860,000. Choice C is correct. Choice A ($1,600,000) is wrong because it omits all cost recovery on the packaging equipment. Choice B ($1,800,000) is wrong because it allows the 40% bonus on the packaging equipment but omits the $60,000 of regular MACRS on its remaining $300,000 basis. Choice D ($2,100,000) is wrong because it gives the packaging equipment 100% bonus depreciation, as if it had been acquired after January 19, 2025; its binding contract dates from June 2024.
- Nguyen is the sole shareholder and employee of an S corporation that operates a manufacturing business and is not a specified service trade or business. For 2025, the corporation paid Nguyen $100,000 in reasonable compensation and passed through $80,000 of ordinary income on Schedule K-1. Nguyen's taxable income exceeds the §199A threshold. Which of the following is correct regarding Nguyen's qualified business income (QBI) for 2025?
Answer: Nguyen's QBI from the corporation is $80,000; the $100,000 compensation is not QBI and counts as W-2 wages for the §199A wage limitation.
IRC § 199A(c)(4) excludes reasonable compensation paid by an S corporation to a shareholder-employee from QBI, and IRC § 199A(b)(4) counts that compensation as W-2 wages for the §199A wage limitation. The $80,000 pass-through ordinary income is therefore QBI. Choice A is correct. Choice B incorrectly includes the compensation in QBI. Choice C confuses the 20% deduction rate with the measure of QBI; QBI remains $80,000. Choice D is wrong because the wage limitation may limit the deduction but does not bar it; the compensation is W-2 wages counted for the limitation.
- Rami, a calendar-year sole proprietor, placed new manufacturing equipment in service in May 2025. The equipment cost $2,600,000 and was acquired under a written binding contract signed in March 2025. Rami's taxable income from the business, before any §179 or bonus depreciation deduction, is $1,800,000. Which of the following is correct regarding Rami's 2025 deduction for this equipment?
Answer: Rami may deduct the full $2,600,000 as bonus depreciation, and the deduction may create or increase a net operating loss.
IRC § 168(k) and IRC § 179(b)(3): The equipment is qualified property acquired after January 19, 2025 (the written binding contract was signed in March 2025) and placed in service after that date, so 100% bonus depreciation is the default rule. Bonus depreciation is not subject to the §179 taxable-income limitation and may create or increase a net operating loss. Choice A is correct. Choice B incorrectly applies the §179 taxable-income cap to bonus depreciation. Choice C is wrong because the 40% rate is not mandatory for this equipment; for property acquired after January 19, 2025, 100% bonus depreciation is the default. Choice D is wrong because it applies a 40% rate to the bonus component and its stated total omits the regular MACRS depreciation on the basis remaining after any §179 and bonus allowances.
- Rosa, a sole proprietor, sold two business assets in 2025: a machine for $82,000 (adjusted basis $22,000; $60,000 of depreciation had been allowed) and land for $210,000 (adjusted basis $180,000). Both assets were held more than one year. Rosa had no other §1231 transactions in 2025 and no non-recaptured §1231 losses from the prior five years. Which of the following correctly characterizes the gains from these sales?
Answer: The gain on the machine is $60,000 of ordinary income under §1245, and the gain on the land is $30,000 of §1231 gain treated as long-term capital gain.
IRC § 1245 and IRC § 1231: Gain from the sale of depreciable personal property is ordinary income to the extent of depreciation allowed, limited to the gain realized. The machine's $60,000 gain equals the $60,000 of depreciation, so all of it is ordinary income under §1245. The land, held for more than one year and used in the business, is §1231 property; its $30,000 gain is a §1231 gain, and with no prior §1231 losses and no other §1231 transactions, it is treated as long-term capital gain. Choice C is correct. Choice B ignores the §1245 recapture that applies before §1231 treatment. Choice A reverses the rules for machine and land. Choice D misapplies §1245: because the gain equals the depreciation, all $60,000 is recaptured as ordinary income, leaving no §1231 gain from the machine.
- What is their section 199A deduction for 2025?
Answer: $80,000, because the dermatology practice is fully phased out and the manufacturing QBI component is $80,000, below the $104,000 taxable-income cap.
IRC § 199A(a), (b)(2) and (d)(3). The deduction is the combined QBI amount, limited to 20% of taxable income less net capital gain. For a specified service trade or business, the applicable percentage reduces QBI, W-2 wages and UBIA as taxable income rises through the 2025 MFJ phase-in range of $394,600 to $494,600, and nothing of the SSTB is taken into account once taxable income exceeds $494,600. With taxable income of $520,000, the dermatology practice contributes nothing. Above the phase-in range, the manufacturing business's component is the lesser of 20% of its QBI (20% × $400,000 = $80,000) and 50% of its W-2 wages (50% × $180,000 = $90,000), so it is $80,000. The overall limit is 20% × $520,000 = $104,000, so the deduction is $80,000. Choice A is correct. Choice B is wrong because the overall taxable-income limit is only a ceiling on the combined QBI amount; it is not itself the deduction, and the business-level limits apply first. Choice C is wrong because an SSTB above the threshold affects only that business's QBI; it does not bar the deduction for a separate non-SSTB business. Choice D is wrong because it takes 20% of combined QBI ($700,000 × 20% = $140,000) without removing the fully phased-out SSTB and without applying the wage limit or the overall limit.
- A client owns a warehouse that has been rented to a commercial tenant for six years and plans to transfer it and acquire a residential rental property in a deferred like-kind exchange in 2025. Which of the following is correct regarding the exchange?
Answer: The client must identify the replacement property within 45 days after transferring the warehouse and must receive it by the earlier of 180 days after the transfer or the due date, including extensions, of the client's return for the year of transfer.
IRC § 1031 and Treas. Reg. § 1.1031(k)-1: In a deferred exchange, the replacement property must be identified within 45 days after the transfer of the relinquished property and received by the earlier of 180 days after the transfer or the due date, including extensions, of the return for the year of transfer. Choice D is correct. Choice B misstates the timing rule and ignores the 45-day identification requirement. Choice C misstates the like-kind test: all real property held for investment or business use is generally like-kind with other real property, regardless of whether it is commercial or residential rental property. Choice A misstates the scope of §1031, which for exchanges after 2017 applies only to real property, not to a delivery truck.
- Falcon Manufacturing, a calendar-year C corporation, has average annual gross receipts of $38 million and is subject to the §163(j) business interest limitation. For 2025, Falcon's taxable income, determined before any deduction for business interest expense but after deducting $300,000 of depreciation, is $1,500,000. Falcon has $700,000 of business interest expense, no business interest income, and no floor plan financing interest. What is Falcon's 2025 deduction for business interest expense?
Answer: Falcon may deduct only $540,000, because the limit is 30% of the $1.8 million ATI, which is the $1.5 million taxable income before interest increased by the $300,000 depreciation addback.
IRC § 163(j)(1) and § 163(j)(8): The business interest deduction is limited to business interest income plus 30% of adjusted taxable income plus floor plan financing interest. For tax years beginning after December 31, 2024, depreciation is added back in computing ATI. Falcon's ATI is $1,500,000 + $300,000 = $1,800,000, and 30% of that is $540,000. Because Falcon has no business interest income and no floor plan financing interest, the deduction is $540,000, with the remaining $160,000 carried forward. Choice B is correct. Choice A applies the pre-2025 rule by failing to add back depreciation. Choice C misapplies the $31,000,000 gross receipts exception; Falcon's receipts are $38,000,000, so the exception does not apply. Choice D is incorrect because §163(j) applies to business interest expense of a C corporation that exceeds the gross receipts threshold, and the absence of business interest income does not create an exception.
- A calendar-year C corporation client asks about a new heavy SUV that it acquired after January 19, 2025, and placed in service in July 2025. The SUV has a 7,000-pound GVWR, is used 100% in the business, and cost $70,000. It placed no other depreciable assets in service during 2025. The corporation has taxable income above any applicable limit, total §179 property is below the phase-out threshold, and it does not elect out of bonus depreciation. It will make any §179 election that maximizes the deduction. What is the maximum first-year cost recovery deduction for the SUV?
Answer: $70,000
IRC §§ 168(k), 179(b)(6), and 280F(d)(5). The SUV has a GVWR above 6,000 pounds, so it is not a passenger automobile under §280F and the $20,200 luxury-automobile cap does not apply. It is a sport utility vehicle under §179(b)(6), so a §179 election on it is capped at $31,300, but the 100% bonus depreciation available for qualified property acquired after January 19, 2025, applies to the vehicle. Whether the taxpayer claims the $31,300 §179 amount first or simply claims 100% bonus, the entire $70,000 cost is recovered in 2025. Choice A applies the passenger-automobile cap to a vehicle above 6,000 pounds. Choice B stops at the §179 SUV cap and ignores bonus depreciation. Choice C applies the §179 SUV cap and then regular MACRS on the remaining basis, but the taxpayer has not elected out of the 100% bonus.
- What is the maximum section 179 deduction the corporation may claim for 2025?
Answer: $2,300,000, because the $2,500,000 limit is reduced dollar-for-dollar by the $200,000 excess over the $4,000,000 phase-out threshold, and the taxable-income limitation does not bind.
The correct answer is Choice B. Under IRC § 179, as amended for tax years beginning after December 31, 2024, the dollar limit is $2,500,000 and the phase-out begins when section 179 property placed in service exceeds $4,000,000. The $4,200,000 placed in service exceeds the threshold by $200,000, so the limit becomes $2,300,000. Because taxable income before section 179 is $2,600,000, the taxable-income limitation does not further reduce the deduction. Choice A ignores the phase-out; Choice C treats the phase-out reduction as the allowable deduction; Choice D ignores both the phase-out and the dollar limit.
- What amount of business interest may Whitecap deduct for 2025, and what is the treatment of any disallowed amount?
Answer: $325,000 may be deducted, and $275,000 is carried forward to future tax years.
The correct answer is Choice C. Under IRC § 163(j), the deduction for business interest is limited to business interest income plus 30% of adjusted taxable income. For tax years beginning after December 31, 2024, depreciation and amortization are added back in computing ATI, so ATI here is $1,000,000, not $600,000. The limitation is $25,000 plus 30% of $1,000,000, or $325,000. Because interest expense is $600,000, Whitecap deducts $325,000 and carries the remaining $275,000 forward under § 163(j)(2). Choice A subtracts depreciation and amortization; Choice B omits business interest income; Choice D ignores the limitation entirely.
- Which statement is correct for 2025?
Answer: The partnership may currently deduct the expenditures for 2025, or it may elect to amortize them ratably over a period of not less than 60 months.
The correct answer is Choice D. IRC § 174A, for tax years beginning after December 31, 2024, makes domestic research or experimental expenditures currently deductible, with an election to amortize them over a period of not less than 60 months. Choice A states the pre-2025 capitalization rule; Choice C has no statutory support; Choice B would apply to foreign research, not domestic research, for the 15-year amortization period.
- For 2025, a calendar-year C corporation that is subject to the §163(j) business interest limitation has taxable income of $1,800,000 after deducting $1,300,000 of business interest, $700,000 of depreciation, and $100,000 of amortization. It has no business interest income, no floor-plan financing interest, no NOL deduction, and no §199A deduction. Its average annual gross receipts for the prior three taxable years exceed $31,000,000. What amount of its 2025 business interest is deductible currently?
Answer: $1,170,000
IRC § 163(j). A taxpayer subject to the business interest limitation may currently deduct business interest up to the sum of business interest income, 30% of adjusted taxable income, and floor plan financing interest. The corporation has no business interest income or floor plan financing interest. For tax years beginning after 2024, adjusted taxable income is computed on an EBITDA basis: $1,800,000 taxable income + $1,300,000 business interest + $700,000 depreciation + $100,000 amortization = $3,900,000. Thirty percent of that amount is $1,170,000, so the current deduction is $1,170,000 and the remaining $130,000 carries forward. Choice A adds back depreciation and amortization but forgets to add back the business interest. Choice B adds back interest but uses the pre-2025 EBIT rule that does not add back depreciation and amortization. Choice D ignores the §163(j) limitation even though the corporation does not qualify for the small business exception.
