Exam 10: Property Acquisition and Cost Recovery

Tom Tom LLC purchased a rental house and land during the current year for $162,000. The purchase price was allocated as follows: $106,000 to the building and $56,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3.)(Round final answer to the nearest whole number.)

Anne LLC purchased computer equipment (five-year property)on August 29 for $44,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Arlington LLC purchased an automobile for $55,000 on July 5, 2020. What is Arlington's depreciation deduction for 2020 if its business-use percentage is 75 percent? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

Eddie purchased only one asset during the current year. On May 1^st 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.)

Which of the allowable methods allows the most accelerated depreciation?

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly. Occasionally, she uses the equipment for personal use. During the first year, Phyllis used the equipment for business use 70 percent of the time; however, during the current (second)year, the business use fell to 40 percent. Assume that the equipment is seven-year MACRS property and is under the half-year convention. Assume the ADS recovery period is 10 years. What is the depreciation allowance for the current year? (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciationpercentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Taxpayers use the half-year convention for all assets.

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Kristine sold two assets on March 20 ^th of the current year. The first was machinery with an original basis of $51,000, currently in the fourth year of depreciation, anddepreciated 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, anddepreciated 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.)

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?

Which of the following would be considered an improvement rather than routine maintenance?

Limits are placed on the depreciation of luxury automobiles.

Amit purchased two assets during the current year.On April 16^th Amit placed in service computer equipment (five-year property)with a basis of $5,000 and on September 9^th placed in service furniture (seven-year property)with a basis of $20,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year).On August 10 Suvi placed in service computer equipment (five-year property)with a basis of $20,000 and on November 18 placed in service machinery (seven-year property)with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

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

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 $63,000. 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.)

Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $504,000. Of that amount, $327,000 is allocated to tangible assets and $177,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization deduction for the current year?(Round final answer to the nearest whole number.)

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

Taxpayers may use historical data to determine the recovery period for tax depreciation.