Exam 10: Property Acquisition and Cost Recovery

Potomac LLC purchased an automobile for $30,000 on August 5,2019.What is Potomac's depreciation deduction for 2019? (Ignore any possible bonus depreciation.)(Use MACRS Table 1 and Exhibit 10-10.)

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Tax depreciation is currently calculated under what system?

To increase their depreciation deduction on automobiles,taxpayers should elect §179 expense.

The MACRS recovery period for automobiles and computers is:

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Like financial accounting,most acquired business property must be capitalized for tax purposes.

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

Racine started a new business in the current year.She incurred $52,000 of start-up costs.If her business started on November 23^rd of the current year,what is the total amount she may deduct with respect to the start-up costs for her initial year,rounded to the nearest whole number?

Eddie purchased only one asset during the current year.On May 1st Eddie placed in service furniture (seven-year property)with a basis of $26,500.Calculate the maximum depreciation deduction,rounded to the nearest whole number (ignoring §179 and bonus depreciation).(Use MACRS Table 1.)

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

Gessner LLC patented a process it developed in the current year.The patent is expected to create benefits for Gessner over a 10-year period.The patent was issued on April 15^th and the legal costs associated with the patent were $43,000.In addition,Gessner had unamortized research expenditures of $15,000 related to the process.What is the total amortization amount Gessner may deduct during the current year?

An asset's capitalized cost basis includes only the actual purchase price,whereas expenses to purchase,prepare the asset for use,and begin using the asset are immediately expensed.

Kristine sold two assets on March 20th of the current year.The first was machinery with an original basis of $51,000,currently in the fourth year of depreciation,and depreciated under the half-year convention.The second was furniture with an original basis of $16,000,placed in service during the fourth quarter,currently in the third year of depreciation,and depreciated under the mid-quarter convention.What is Kristine's depreciation deduction for the current year if the depreciation recovery period is seven years? (Use MACRS Table 1 and Table 2 and Exhibit 10-6.)(Round final answer to the nearest whole number.)

Janey purchased machinery on April 8^th of the current year.The relevant costs for the year are as follows: machinery for $10,000,$800 shipping,$50 for delivery insurance,$500 for installation,$750 for sales tax,$150 for the annual tune-up,and $200 of property taxes (an annual tax on business property).What is Janey's tax basis for the machinery?

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Which of the following assets is eligible for §179 expensing?

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.)

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