Exam 2: Property Acquisition and Cost Recovery

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

Billie Bob purchased a used camera (five-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 deduction 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.)

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

All assets subject to amortization have the same recovery period.

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,464,500 on June 6, 2020. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation).

Limits are placed on the depreciation of luxury automobiles.

Daschle LLC completed some research and development during June of the current year. The related costs were $69,600. 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?

Which of the following depreciation conventions is not used under MACRS?

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Littman LLC placed in service on July 29, 2020, machinery and equipment (seven-year property) with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2020?

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

Which of the following assets is not eligible for bonus depreciation?

Lax LLC purchased only one asset during the current year (a full 12-month tax year).On August 26 Lax placed in service computer equipment (five-year property) with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation).

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10 ^th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

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.

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

Lenter LLC placed in service on April 29, 2020, 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).

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 $30,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation).

Tax depreciation is currently calculated under what system?

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.