Exam 10: Depreciation, cost Recovery, amortization, and Depletion

Jimmy acquires an oil and gas property interest for $600,000.Jimmy expects to recover 200,000 barrels of oil.Intangible drilling and development costs are $160,000 and are charged to expense.Other expenses are $40,000.During the year,25,000 barrels of oil are sold for $800,000.Jimmy's depletion deduction is

Under the MACRS system,automobiles and computers are classified as seven-year property.

Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000.No hardware was acquired.How much of the cost can Galaxy deduct this year?

Greta,a calendar-year taxpayer,acquires 5-year tangible personal property in 2016 and places the property in service on the following schedule: Greta elects to expense the maximum under Sec.179,and selects the property placed into service on November 8.The property is not eligible for bonus depreciation.Her business 's taxable income before Sec.179 is $790,000.What is the total cost recovery deduction (depreciation and Sec.179)for 2016?

Residential rental property is defined as property from which more than 80% of the gross rental income is rental income from dwelling units.

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

In computing MACRS depreciation in the year of disposition of personal property used in a trade or business,the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.

The MACRS system requires that residential real property and nonresidential rental property be depreciated using the straight-line method.

Chahana acquired and placed in service $665,000 of equipment on August 1,2016 for use in her sole proprietorship.The equipment is 5-year recovery property.No other acquisitions are made during the year.Chahana elects to expense the maximum amount under Sec.179.Assuming the property does not qualify for bonus depreciation,Chahana's total deductions for the year (including Sec.179 and depreciation)are

All of the following are true with regard to the alternative depreciation system except

Ilene owns an unincorporated manufacturing business.In 2016,she purchases and places in service $2,016,000 of qualifying five-year equipment for use in her business.The property does not qualify for bonus depreciation.Her taxable income from the business before any Sec.179 deduction is $400,000.Elaine takes the maximum allowable deduction under section 179.Which of the following statements is true regarding the Sec.179 election?

Fariq purchases and places in service in 2016 personal property costing $2,031,000.The property does not qualify for bonus depreciation.What is the maximum Sec.179 deduction that Fariq can deduct,ignoring any taxable income limitation?

Section 179 allows taxpayers to immediately expense up to $500,000 for 2016 of the cost of real and personal property placed into service in a trade or business,subject to limitations,.

Tronco Inc.placed in service a truck costing $40,000 on January 15 of this year.On November 1,the company placed in service $200,000 of construction equipment.Tronco is a calendar year taxpayer.When calculating MACRS depreciation,Tronco must apply the mid-quarter convention to the construction equipment,but will use the half-year convention for the truck.

On January 1 of the current year,Dentux Corp.purchases a patent from another corporation for $600,000.The patent has a remaining life of 10 years.The patent is the only asset purchased from that corporation.Also on January 1,Dentux purchases all of the assets of Fenton Corp.Included in the Fenton assets acquired is a patent worth $300,000 that has a 10-year remaining life.What is the allowable amortization deduction on the two patents?

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

Harrison acquires $65,000 of 5-year property in June 2014 that is required to be depreciated using the mid-quarter convention (because of other purchases that year).He did not elect Sec.179 immediate expensing.Bonus depreciation was not available.If Harrison sells the property on August 23,2016,what is the amount of depreciation claimed in 2016?

The basis of an asset must be reduced by the depreciation allowable.

On January 3,2013,John acquired and placed into service business tools costing $10,000.The tools have a 3-year class life.No other assets were purchased during that year.The depreciation in 2016 for those tools is (Sec.179 and bonus depreciation were not applied)

Arthur uses a Chevrolet Suburban (GVWR 7,500 pounds)100% for business.He acquired and placed the vehicle in service in his business in January of the current year.The vehicle cost $65,000.The maximum deduction allowed this year is