Exam 10: Property Acquisition and Cost Recovery

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Which is not an allowable method under MACRS?

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

Paulman incurred $66,000 of research and experimental expenses and began amortizing them over 60 months during June of Year 1. During May of Year 3, Paulman received a patent based upon the research being amortized. $47,000 of legal expenses for the patent were incurred. The patent is expected to have a remaining useful life of 17 years. 1)What is the basis of the patent? (Round amortization for each year to the nearest whole number.) 2)What is the amortization deduction with respect to the patent during the year it was issued? (Round final answer to the nearest whole number.)

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

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.)

Sairra LLC purchased only one asset during the current year (a full 12-month tax year). On April 16 Sairra placed in service furniture (seven-year property)with a basis of $25,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)(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.

Sequoia purchased the rights to cut timber on several tracts of land over a 15-year period. It paid $500,000 for cutting rights. A timber engineer estimates that 500,000 board feet of timber will be cut. During the current year, Sequoia cut 45,000 board feet of timber, which it sold for $900,000. What is Sequoia's cost depletion deduction for the current year?

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Oksana started a LLC on November 2 of the current year. She incurred $41,000 of start-up costs. How much of the start-up costs can be immediately expensed for the year? How much amortization may Oksana deduct in the first year?