Exam 10: Property Acquisition and Cost Recovery

Boxer LLC has acquired various types of assets recently used 100 percent in its trade or business.Below is a list of assets acquired during 2018 and 2019: Asset Cost Basis Corvention Date Placed in Service Machirery 25,000 Half-year Jaruary 24, 2018 Warehouse 800,000 Mid-month August 1, 2018 Furniture 100,000 October 5, 2019 Computer equipment 65,000 October 10,2019 Office equipment 34,000 Septernber 28, 2019 Automobile 35,000 July 15,2019 Office building 800,000 Septermber 24, 2019 Boxer did not elect §179 expense and elected out of bonus depreciation in 2018, but would like to take advantage of the §179 expense and bonus depreciation for 2019 (assume that taxable income is sufficient).Calculate Boxer's maximum depreciation deduction for 2019.(Use MACRS Table 1, MACRS Table 5, and Exhibit 10-10.)(Round final answer to the nearest whole number.)

Flax LLC purchased only one asset this year.On January 16 Flax placed in service a computer (five-year property)with a basis of $14,000.Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation).(Use MACRS Table 1.)

Lenter LLC placed in service on April 29, 2019, machinery and equipment (seven-year property)with a basis of $1,600,000.Assume that Lenter has sufficient income to avoid any limitations.Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus expensing).(Use MACRS Table 1.)

Taxpayers use the half-year convention for all assets.

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Goodwill and customer lists are examples of §197 amortizable assets.

Reid acquired two assets in 2019: on August 6th he acquired computer equipment (five-year property)with a basis of $1,020,000 and on November 9th he acquired machinery (seven-year property)with a basis of $1,020,000.Assume that Reid has sufficient income to avoid any limitations.Calculate the maximum depreciation deduction, including §179 expensing (but not bonus depreciation).(Use MACRS Table 1.)

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period.Santa Fe paid $300,000 for extraction rights.A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise.During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000.What is Santa Fe's cost depletion deduction for the current year?

Columbia LLC only purchased one asset this year.Columbia LLC placed in service on July 9, 2019, machinery and equipment (seven-year property)with a basis of $2,750,000.Assume that Columbia has sufficient income to avoid any limitations.Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation)for the year.(Use MACRS Table 2.)(Round final answer to the nearest whole number.)

Crouch LLC placed in service on May 19, 2019, machinery and equipment (seven-year property)with a basis of $3,200,000.Assume that Crouch has sufficient income to avoid any limitations.Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation).(Use MACRS Table 1.)

Arlington LLC purchased an automobile for $55,000 on July 5, 2019.What is Arlington's depreciation deduction for 2019 if its business-use percentage is 75 percent? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

Timothy purchased a new computer for his consulting practice on October 15^th of the current year.The basis of the computer was $4,000.During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state.The computer was never used for business purposes again.Timothy had $50,000 of taxable income before depreciation.What is Timothy's total cost recovery deduction with respect to the computer during the current year?

Beth's business purchased only one asset during the current year (a full 12-month tax year).On December 1 Beth placed in service machinery (seven-year property)with a basis of $50,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 2.)

Patin Corporation began business on September 23^rd of the current year.It incurred $40,000 of start-up costs and $60,000 of organizational expenditures.How much total amortization may be deducted in the first year? (Round final answer to the nearest whole number.)

How is the recovery period of an asset determined?

Tax cost recovery methods include depreciation, amortization, and depletion.

An example of an asset that is both personal-use and personal property is:

Billie Bob purchased a used camera (five-year property)for use in his sole proprietorship in the prior year.The basis of the camera was $2,400.Billie Bob used the camera in his business 60 percent of the time during the first year.During the second year, Billie Bob used the camera 40 percent for business use.Calculate Billie Bob's depreciation deduction during the second year, assuming the sole proprietorship had a loss during the year.(Billie Bob did not place the asset in service in the last quarter.)(Use MACRS Table 1.)

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.