Exam 10: Property Acquisition and Cost Recovery

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

Potomac LLC purchased an automobile for $30,000 on August 5, 2018. What is Potomac's depreciation expense for 2018 (ignore any possible bonus depreciation)? (Use MACRS Table 1, and Exhibit 10-10)

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

The mid-month convention applies to real property in the year of acquisition and disposition.

Bonus depreciation is used as a stimulus tool by tax policy makers.

Used property is eligible for bonus depreciation.

Patin Corporation began business on September 23ʳᵈ of the current year. It incurred $40,000 of start-up costs and $60,000 of organizational expenditures. How much total amortization may be deducted in the first year? (Round final answer to the nearest whole number.)

Which of the allowable methods allows the most accelerated 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 expense Daschle may deduct during the current year?

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

Crouch LLC placed in service on May 19, 2018 machinery and equipment (7-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1)

Roth, LLC purchased only one asset during the current year. Roth placed in service office equipment (7-year property) on August 1ˢᵗ with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention) (Round final answer to the nearest whole number.)

Beth's business purchased only one asset during the current year (a full 12-month tax year). Beth placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2)

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 depreciation percentage from the MACRS table percentage by 50 percent to calculate the depreciation expense properly.

Billie Bob purchased a used camera (5-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter). (Use MACRS Table 1)

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.

Depletion is the method taxpayers use to recover their capital investment in natural resources.

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

How is the recovery period of an asset determined?

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15ᵗʰ and the purchase price was $75,000. If the copyright has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year? (Assume not in an asset acquisition to which §197 applies)