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

Joan bought a business machine for $15,000. In a later year, she sold the machine for $12,800 when the total allowable depreciation is $8,500. The depreciation actually taken on the tax returns totaled $8,000. Joan must recognize a gain (or loss) of

On its tax return, a corporation will use the same depreciation, amortization and depletion methods used in its financial statements issued to shareholders.

In April 2016, 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, and it is not eligible for bonus depreciation. Emma's depreciation on the machine this year is

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

Why would a taxpayer elect to use the alternative depreciation system rather than the MACRS rules?

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

Jack purchases land which he plans on developing as a golf course. The land costs $20,000,000 and the cost of clearing the land, earthmoving, constructing hazards, bunkers and greens, and installing irrigation systems will cost an additional $6,000,000. What tax issues should Jack consider?

On June 30, 2016, Temika purchased office furniture (7-year property) costing $400,000 and computers (5-year property) with a cost of $250,000. She uses Sec. 179, but the assets do not qualify for bonus depreciation. Her business income is $790,000 without considering Sec. 179. How should she allocate the 179 election in order to maximize her total cost recovery deductions (depreciation and Sec. 179) for 2016 ?

For real property placed in service after 1986, depreciation under the MACRS system is calculated using the

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)

The mid-quarter convention applies to personal and real property.

Discuss the options available regarding treatment of an amount paid in excess of the FMV of an acquired company's net assets in a business combination.

MACRS recovery property includes tangible personal and real property that is used in a trade or business.

Atiqa took out of service and sold a residential rental property on October 31 of this year. She had originally acquired the property in July ten years ago. The building (excluding the value of the land) cost $1,000,000. How much is her current year depreciation deduction?

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

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

Land, buildings, equipment, and common stock are examples of tangible property.

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

A calendar-year taxpayer places in service one new piece of equipment this year on March 1. The asset cost $600,000. For this first year, the taxpayer will base the depreciation deduction on 10 months.

The Section 179 expensing election is available on an annual basis for property purchased during the year.