Exam 10: Property Acquisition and Cost Recovery

Boxer LLC has acquired various types of assets recently used 100% in its trade or business. Below is a list of assets acquired during 2017 and 2018: Boxer did not elect §179 expense and elected out of bonus depreciation in 2017, but would like to take advantage of the §179 expense and bonus depreciation for 2018 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2018. (Use MACRS Table 1, Table 5 and Exhibit 10-10 ) (Round final answer to the nearest whole number.)

Anne LLC purchased computer equipment (5-year property) on August 29 for $30,000 and used the half-year convention. 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)

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 expense for the current year?

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

Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16ᵗʰ with a basis of $5,000 and furniture (7-year property) on September 9ᵗʰ with a basis of $20,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Assume that Yuri acquires a competitor's assets on May 1ˢᵗ. The purchase price was $500,000. Of the amount, $325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization expense for the current year? (Round final answer to the nearest whole number.)

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 3)

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

Bonnie Jo purchased a used camera (5-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter). (Use MACRS Table 1)

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

Which is not an allowable method under MACRS?

Lenter LLC placed in service on April 29, 2018 machinery and equipment (7-year property) with a basis of $1,600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing). (Use MACRS Table 1)

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

Significant limits are placed on the depreciation of luxury automobiles.

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 5)

Taxpayers use the half-year convention for all assets.

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

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.