Exam 10: Property Acquisition and Cost Recovery

Which of the following depreciation conventions is not used under MACRS?

Jorge purchased a copyright for use in his business in the current year.The purchase occurred on July 15^th and the purchase price was $75,000.If the copyright has a remaining life of 75 months,what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

During August of the prior year,Julio purchased an apartment building that he used as a rental property.The basis was $1,400,000.Calculate the maximum depreciation deduction during the current year.(Use MACRS Table 3.)

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.

Bonnie Jo used two assets during the current year.The first was computer equipment with an original basis of $15,000,currently in the second year of depreciation and depreciated under the half-year convention.This asset was disposed of on October 1st of the current year.The second was furniture with an original basis of $24,000,placed in service during the first quarter,currently in the fourth year of depreciation,and depreciated under the mid-quarter convention.What is Bonnie Jo's depreciation deduction for the current year? (Round final answer to the nearest whole number.)(Use MACRS Table 1 and Table 2.)

In general,major integrated oil and gas producers may take the greater of cost or percentage depletion.

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.)

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?

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 estimated that Santa Fe will recover 5,000 pounds of turquoise.During the past several years,4,000 pounds were extracted.During the current year,Santa Fe extracted 1,500 pounds of turquoise,which it sold for $250,000.What is Santa Fe's cost depletion deduction for the current year?

Bonnie Jo purchased a used camera (five-year property)for use in her sole proprietorship.The basis of the camera was $2,400.Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year.Calculate Bonnie Jo's depreciation deduction during the first year,assuming the sole proprietorship had a loss during the year.(Bonnie did not place the property in service in the last quarter.)(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.)

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.)

Lax LLC purchased only one asset during the current year (a full 12-month tax year).On August 26 Lax placed in service computer equipment (five-year property)with a basis of $20,000.Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation).(Use MACRS Table 1.)

Wheeler LLC purchased two assets during the current year (a full 12-month tax year).On November 16 Wheeler placed in service computer equipment (five-year property)with a basis of $15,000 and on April 20 placed in service furniture (seven-year property)with a basis of $11,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 2.)(Round final answer to the nearest whole number.)

Tax cost recovery methods do not include:

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.)

How is the recovery period of an asset determined?

Bonus depreciation is used as a stimulus tool by tax policy makers.

All assets subject to amortization have the same recovery period.

Tasha LLC purchased furniture (seven-year property)on April 20 for $20,000 and used the half-year convention to depreciate it.Tasha did not take §179 or bonus depreciation in the year it acquired the furniture.During the current year,which is the fourth year Tasha LLC owned the property,the property was disposed of on December 15.Calculate the maximum depreciation expense.(Use MACRS Table 2 and Exhibit 10-6.)(Round final answer to the nearest whole number.)