4. Jill is paid royalty income from the publisher of a book she wrote two years ago. She should
report this income on
5. Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interestbearing
note on business property on January 1 of the current year. The cash flow from Nan’s
business enabled Nan to prepay the first three years of interest attributable to the note on
December 31 of the current year. How should Nan treat the prepayment of interest for tax
Deduct the entire amount as a current expense.
Capitalize the interest and amortize the balance over the 10-year load period.
Capitalize the interest as part of the basis of the business property.
Deduct the current year’s interest and amortize the balance over the next two years.
6. A taxpayer purchased and placed into service a $690,000 piece of equipment in a year with
a maximum allowable section 179 amount of $500,000 and a ceiling of $2,000,000 of qualifying
property. The equipment is 7-year property. The first-year depreciation for 7-year property is
14.29%. Before considering any depreciation deduction, the taxpayer had $700,000 of taxable
income. The taxpayer elected out of any bonus depreciation. What amount is the maximum
allowable depreciation deduction?
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