Exam 10: Depreciation, Cost Recovery, Amortization, and Depletion

On January l Grace leases and places into service an automobile with a FMV of $39,000. The business use of the automobile is 60%. The "inclusion amount" for the initial year of the lease from the IRS tables is $20. The annual lease payments are $8,000. What are the tax consequences of this lease?

Once the business use of listed property falls to 50% or below, the alternative depreciation system must be used for the current year and all subsequent years, even if the business use percentage increases to more than 50% in a subsequent year.

Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.

Under the MACRS system, the same convention that applies in the year of acquisition (e.g., half-year, mid-quarter, or mid-month)also applies in the year of disposition.

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.

Cate purchases and places in service property costing $150,000 in 2014. She wants to elect the maximum Sec. 179 deduction allowed. Her business income is $20,000. What is the amount of her allowable Sec. 179 deduction and carryover, if any?

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Under the MACRS system, depreciation rates for real property must always use the mid-month convention in the year of acquisition.

Sec. 179 tax benefits are recaptured if at any time an asset is converted to personal use.

Everest Corp. acquires a machine (seven-year property)on January 10, 2014 at a cost of $212,000. Everest makes the election to expense the maximum amount under Sec. 179. a. Assume that the taxable income from trade or business is $500,000. b. Assume instead that the taxable income from trade or business is $10,000.

Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs)rather than expense such costs?

In April 2014, Emma acquired a machine for $60,000 for use in her business. The machine is classified as 7-year property. Emma does not expense the asset under Sec. 179. Emma's depreciation on the machine this year is

Which of the following statements regarding Sec. 179 is true?