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In 2022, Perry, who is not otherwise involved in the gas station business, spends $53,000 investigating the acquisition of a gas station. All costs are ordinary and necessary. Perry acquires the gas station and begins business on December 1, 2022.

1. What amount can Perry deduct in 2022 for the expenses incurred in investigating the acquisition of the gas station if Perry chooses to accelerate his deductions as much as possible?

2. Assume instead that Perry incurred $55,000 in expenses instead of $53,000. What amount can Perry deduct in 2022?

3. Assume instead that Perry incurred $55,000 investigating the acquisition of a gas station but did not acquire the gas station. What amount can Perry deduct in 2022?

4. Assume instead that Perry already owned 5 other gas stations and spends $55,000 investigating the acquisition of a sixth gas station. Perry ultimately decides not to go through with the acquisition. What amount can Perry deduct in 2022?

Answer :

If Perry incurred $55,000 in investigating expenses and acquired the gas station, he can still only deduct the maximum amount allowed for startup expenses, which is $5,000 in the year of acquisition.

If Perry acquired the gas station and began business on December 1, 2022, and incurred $53,000 in investigating expenses, he can deduct the full amount of $53,000 in 2022 as startup expenses for the gas station.

If Perry incurred $55,000 in investigating expenses and acquired the gas station, he can still only deduct the maximum amount allowed for startup expenses, which is $5,000 in the year of acquisition. The remaining $50,000 would be amortized and deducted over a 180-month period (15 years) starting from the month the business started.

If Perry incurred $55,000 investigating the acquisition of a gas station but did not ultimately acquire the gas station, he would not be able to deduct any amount in 2022. These expenses would be considered non-deductible personal expenses or non-deductible capital expenses.

If Perry already owned five other gas stations and spent $55,000 investigating the acquisition of a sixth gas station but ultimately decided not to proceed with the acquisition, the $55,000 would likely be considered non-deductible personal expenses or non-deductible capital expenses. Since Perry already owned the other gas stations, the expenses incurred in investigating the acquisition of the sixth station would not qualify as startup expenses or deductible business expenses.

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