Exam 10: Property Acquisition and Cost Recovery

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.)

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?

Assume that Brittany acquires a competitor's assets on September 30^th of Year 1 for $350,000.Of that amount,$300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement).Given that the noncompete agreement expires on September 30^th of Year 2,what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

If the business-use percentage for listed property falls below 50 percent,the only adjustment is that all future depreciation must be calculated under the straight-line method.

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes.On November 10^th of the current year,when the fair market value of the computer was $800,Jaussi converted it to business use.What is Jaussi's tax basis for the computer?

An office desk is an example of:

If a business mistakenly claims too little depreciation,the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

Simmons LLC purchased an office building and land several years ago for $250,000.The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land.The property was placed in service on October 2.If the property is disposed of on February 27 during the 10^th year,calculate Simmons's maximum depreciation in the 10^th year.(Use MACRS Table 5 and Exhibit 10-6.)

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.)

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

In general,a taxpayer should select longer-lived property for the §179 immediate expensing election.

Businesses may immediately expense research and experimentation expenditures,or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Jasmine started a new business in the current year.She incurred $10,000 of start-up costs.How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months)for the year?

Which depreciation convention is the general rule for tangible personal property?

All taxpayers may use the §179 immediate expensing election on certain property.

PC Mine purchased a platinum deposit for $3,500,000.It estimated it would extract 17,000 ounces of platinum from the deposit.PC mined the platinum and sold it,reporting gross receipts of $500,000 and $8 million for Years 1 and 2,respectively.During Years 1 and 2,PC reported net income (loss)from the platinum deposit activity in the amount of ($100,000)and $3,800,000,respectively.In Years 1 and 2,PC actually extracted 2,000 and 8,000 ounces of platinum.What is PC's depletion deduction for Years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (Round final answer to the nearest whole number.)

Assume that Bethany acquires a competitor's assets on March 31^st.The purchase price was $150,000.Of that amount,$125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset).What is Bethany's amortization deduction for the current year? (Round final answer to the nearest whole number.)

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Littman LLC placed in service on July 29,2019,machinery and equipment (seven-year property)with a basis of $600,000.Littman's income for the current year before any depreciation deduction was $100,000.Which of the following statements is true to maximize Littman's total depreciation deduction for 2019? (Use MACRS Table 1.)