Discuss what are the maximum cost recovery deductions

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Reference no: EM131775896

While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a business called ISys Answers, which was a technology support company. During year 1, they bought the following assets and incurred the following fees at start-up:

Year 1 Assets                        Purchase Date                   Basis

Computers (5-year)           October 30, Y1                     $15,000

Office equip (7-year)          October 30, Y1                      $10,000

Furniture (7-year)                October 30, Y1                      $3,000

Start-up costs                      October 30, Y1                      $17,000

In April of year 2, they decided to purchase a customer list from a company started by fellow information systems students preparing to graduate who provided virtually the same services. The customer list cost $10,000 and the sale was completed on April 30. During their summer break, Dallin and Michael passed on internship opportunities in an attempt to really grow their business into something they could do full-time after graduation. In the summer, they purchased a small van (for transportation, not considered a luxury auto) and a pinball machine (to help attract new employees). They bought the van on June 15, Y2, for $15,000 and spent $3,000 getting it ready to put into service. The pinball machine cost $4,000 and was placed in service on July 1, Y2.

Year 2 Assets                        Purchase Date                   Basis

Van                                        June 15, Y2                       $18,000

Pinball machine (7-year)     July 1, Y2                           $4,000

Customer list                        April 30, Y2                      $10,000

Assume that ISys Answers does not claim any §179 expense or bonus depreciation.

  1. What are the maximum cost recovery deductions for ISys Answers for Y1 and Y2?
  2. Complete ISys Answers' Form 4562 (use the most current form available).
  3. What is ISys Answers' basis in each of its assets at the end of Y2?

Reference no: EM131775896

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