This year Bauer Corporation incurs the following costs in development of new products: \[\begin{array} { | l | r | } \hline \text { Laboratory supplies } & \$ 55,000 \\ \hline \text { Laboratory equipment purchased } & 50,000 \\ \text { (5-year recovery property) } & \\ \hline \text { Salaries (lab personnel) } & 90,000 \\ \hline \text { Utilities } & 20,000 \\ \hline \text { Total } & \$ 215,000 \\ \hline \end{array}\] No benefits are realized from the research expenditures until next year. If Bauer Corporation elects to expense the research expenditures, the deduction is

A) $10,000 this year and $175,000 next year. B) $175,000 next year. C) $175,000 this year. D) $215,000 this year. A) $10,000 this year and $175,000 next year. B) $175,000 next year. C) $175,000 this year. D) $215,000 this year.

Exam 25: Depreciation, Cost Recovery, Amortization, and Depletion

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.

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(True/False)

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Question 1

Correct Answer:

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True

Quattro Enterprises, a calender year taxpayer, leases the twentieth floor of a building downtown. Due to employment expansion, it renovated the entire office space layout, spending $600,000 on these leasehold improvements. The office renovation was completed in May. Quattro also spent $500,000 on new computer systems and office furniture and fixtures in May on which the business used its entire Sec. 179 allowance for 2016. What is the maximum depreciation deduction available in 2016 for the leasehold improvements?

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(Multiple Choice)

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Question 2

Correct Answer:

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Mehmet, a calendar-year taxpayer, acquires 5-year tangible personal property in 2016 and does not use Sec. 179. The property does not qualify for bonus depreciation. Mehmet places the property in service on the following schedule: Date placed in service Acquisition Cost January 15 \ 50,000 May 25 \ 100,000 November 8 \ 200,000 What is the total depreciation for 2016?

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Question 3

Correct Answer:

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$\begin{array}{llll}\text { Placed in Service } & \text { MACRS Deareciation } & \\\text { January } 15 & \$ 50,000 \times .35 & = & \$ 17,500 \\\text { May } 25 & \$ 100,000 \times .25 & = & \$ 25,000 \\\text { November } 8 & \$ 200,000 \times .05 & = & \$ 10,000\end{array}$ More than 40% of the assets are placed in service in the last quarter of the year so the mid-quarter convention must be used. (Tables 2, 3 ,5)

In calculating depletion of natural resources each period,

(Multiple Choice)

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Question 4

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year, the mid-quarter convention is required.

(True/False)

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Question 5

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

(True/False)

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Question 6

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,.

(True/False)

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Question 7

In order for an asset to be depreciated in the year of purchase, it must be placed in service before year's end.

(True/False)

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Question 8

On May 1, 2012, Empire Properties Corp., a calendar year taxpayer, purchased an office building for $1,000,000, of which $400,000 was allocable to the land. The corporation sold the property this year on September 23, 2016. a. What was the corporation's depreciation for the building, using statutory percentages under MACRS for 2012? b. What was the corporation's depreciation for the building, using statutory percentages under MACRS for 2016?

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Question 9

Enrico is a self-employed electrician. In May of the current year, Enrico acquired a used van (5-year property) for $12,000. He used the van 80% for business and 20% for personal purposes. Enrico does not take any Sec. 179 deduction. The maximum depreciation deduction for is

(Multiple Choice)

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Question 10

Personal property used in a rental activity held for investment qualifies for the Section 179 expensing election.

(True/False)

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Question 11

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

(Multiple Choice)

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Question 12

This year Bauer Corporation incurs the following costs in development of new products: Laboratory supplies \ 55,000 Laboratory equipment purchased 50,000 (5-year recovery property) Salaries (lab personnel) 90,000 Utilities 20,000 Total \ 215,000 No benefits are realized from the research expenditures until next year. If Bauer Corporation elects to expense the research expenditures, the deduction is

(Multiple Choice)

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Question 13

Kenrick is an employee of the Theta Corp. sales department. He uses his automobile 75% for making sales calls. He can deduct depreciation on his auto by reporting on Form 4562 (Depreciation and Amortization).

(True/False)

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Question 14

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

(Multiple Choice)

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Question 15

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

(True/False)

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Question 16

Unless an election is made to expense or defer and amortize research and experimental expenditures, these costs must be capitalized.

(True/False)

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Question 17

Sophie owns an unincorporated manufacturing business. In 2016, she purchases and places in service $2,017,000 of qualifying five-year equipment for use in her business. the equipment does not qualify for bonus depreciation. Her taxable income from the business before any Sec. 179 deduction is $450,000. Sophie's elects to expense the maximum under Sec. 179. What is Sophie's maximum total cost recovery deduction for 2016?

(Multiple Choice)

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Question 18

Caitlyn purchases and places in service property costing $450,000 in 2016. She wants to elect the maximum Sec. 179 deduction allowed. The property does not qualify for bonus depreciation. Her business income is $400,000. What is the amount of her allowable Sec. 179 deduction and carryover, if any?

(Multiple Choice)

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Question 19

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.

(True/False)

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Question 20

Showing 1 - 20 of 103

Exam 25: Depreciation, Cost Recovery, Amortization, and Depletion

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.

In calculating depletion of natural resources each period,

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year, the mid-quarter convention is required.

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

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,.

In order for an asset to be depreciated in the year of purchase, it must be placed in service before year's end.

Enrico is a self-employed electrician. In May of the current year, Enrico acquired a used van (5-year property) for $12,000. He used the van 80% for business and 20% for personal purposes. Enrico does not take any Sec. 179 deduction. The maximum depreciation deduction for is

Personal property used in a rental activity held for investment qualifies for the Section 179 expensing election.

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

Kenrick is an employee of the Theta Corp. sales department. He uses his automobile 75% for making sales calls. He can deduct depreciation on his auto by reporting on Form 4562 (Depreciation and Amortization).

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

Unless an election is made to expense or defer and amortize research and experimental expenditures, these costs must be capitalized.

Caitlyn purchases and places in service property costing $450,000 in 2016. She wants to elect the maximum Sec. 179 deduction allowed. The property does not qualify for bonus depreciation. Her business income is $400,000. What is the amount of her allowable Sec. 179 deduction and carryover, if any?

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.

Tax Research

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