Exam 10: Property Acquisition and Cost Recovery

Clay LLC placed in service machinery and equipment (seven-year property)with a basis of $3,450,000 on June 6, 2019. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Which is not an allowable method under MACRS?

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?

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

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

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.

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?

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

Flax LLC purchased only one asset this year. On January 16 Flax placed in service a computer (five-year property)with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

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

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2019, machinery and equipment (seven-year property)with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Used property is eligible for bonus depreciation.

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization amount Daschle may deduct during the current year?

Alexandra purchased a $55,000 automobile during 2019. The business use was 70 percent. What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

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.)

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.)

Real property is depreciated using the straight-line method.

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year. (Use MACRS Table 5.)(Round final answer to the nearest whole number.)

If a taxpayer places only one asset (a building)in service during the fourth quarter of the year, the mid-quarter convention must be used.