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Exam 8: Depreciation, cost Recovery, amortization, and Depletion

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Question 1

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Tom acquired a used five-year class asset on November 5,2011 for $20,000.This was the only asset Tom acquired in 2011.He placed the asset in service on January 20,2012.However,because the asset was purchased in 2011,Tom deducted regular MACRS cost recovery on the asset for the year 2011.He did not elect to expense any of the asset under § 179.In 2012,Tom purchased no assets and because he had no taxable income,he did not deduct any cost recovery.In 2013,Tom sold the five-year asset on September 25th.Determine the basis of the five-year asset at the time of the sale.

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The cost of the asset must be ...

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Rustin bought used 7-year class property on May 15,2011,for $800,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Rustin elects not to take additional first-year depreciation.Determine the write-off Rustin can take in 2011.

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The § 179 limit of $250,000 for qualified leasehold improvement property is in addition to the $500,000 limit for tangible personal property.

Under the MACRS straight-line election for personalty,the mid-quarter convention is applicable.

Augie purchased one used asset during the year (five-year property) on November 10,2011,at a cost of $650,000.She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $400,000.Determine the total cost recovery deduction with respect to the asset for 2011.

Doug purchased a new factory building on January 15,1988,for $400,000.On March 1,2011,the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method.

Not all listed property is subject to the substantiation requirements of § 274.

Jim acquires a new seven-year class asset on September 20,2011,for $80,000.He placed the asset in service on October 5,2011.He does not elect to expense any of the asset under § 179 or elect straight-line,cost recovery.He elects not to take additional first-year depreciation.He sells the asset on August 25,2012.This is the only asset he acquires in 2011.Determine Jim's cost recovery in 2011 and 2012.

Under MACRS,if the mid-quarter convention is applicable,all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

Under the MACRS mid-quarter convention,an asset sold on December 10 will be treated as though it were sold on November 15 for a calendar year taxpayer.

Tan Company acquires a new machine (ten-year property) on January 15,2011,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2011,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election.Tan elects not to take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2011.

If more than 40% of the value of property,other than real property,is placed in service during the last quarter,all of the property will be allowed 1.5 months of cost recovery.

The basis of cost recovery property must be reduced by the cost recovery allowed.

A taxpayer may elect to use the alternative depreciation system (ADS)on property used predominantly outside the United States.

Taxpayers may elect to use the straight-line method under MACRS for personalty.

On February 21,2011,Joe purchased new farm equipment for $600,000.Joe has made an election to not have the uniform capitalization rules apply to his farming business.He elects not to take additional first-year depreciation.If Joe elects § 179,what is the maximum write-off for this purchase for 2011?

White Company acquires a new machine (seven-year property) on January 10,2011,at a cost of $900,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does elect not to take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2011 assuming White has taxable income of $800,000.

In 2010,Gail had a § 179 deduction carryover of $15,000.In 2011,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2011 is $127,000.Determine Gail's § 179 deduction for 2011.

Polly purchased a new hotel on July 20,2011,for $6,000,000.On January 20,2018,the building was sold.Determine the cost recovery deduction for the year of the sale.

Bonnie purchased a new business asset (five-year property) on March 10,2011,at a cost of $20,000.She also purchased a new business asset (seven-year property) on November 20,2011,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnie elects not to take additional first-year depreciation.Determine the cost recovery deduction for 2011 for these assets.