Problem 1 - Karen is an employee of KF Corporation (a calendar-year taxpayer). In February 2013, KF purchased a new $40,000 car for Karen's use. During 2013, 2014, and 2015, 60 percent of Karen's mileage on the car was business related and 40 percent was for her personal driving. Her personal use was properly treated as taxable fringe benefit income.
a. Compute KF Corporation's depreciation deduction for the car for 2013, 2014, and 2015 if the maximum depreciation (including bonus depreciation) was claimed.
b. How would your answers change if Karen had used the car for only 45 percent business use and 55 percent personal use?
Problem 2 - Herald Corporation, a calendar-year taxpayer, purchased and placed the following business assets in service.
|
Asset
|
Date Placed in Service
|
Initial Cost
|
|
New computer equipment
|
April 3
|
$ 50,000
|
|
Used office furniture
|
July 14
|
940,000
|
|
Used office fixtures
|
October 29
|
1,060,000
|
Herald Corporation is also considering the purchase of $450,000 of additional office furniture. It could wait until January to make the purchase, or it could buy the furniture and place it in service in December to try to increase its current-year tax depreciation deduction. What impact would this proposed purchase have on Herald's depreciation deduction for the year if bonus depreciation is not claimed (if eligible) and the maximum Section 179 expensing limit is (a) $500,000 or (b) $25,000?