Exam 9: Property Acquisition and Cost Recovery

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

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

The method for tax amortization is always the straight-line method.

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10th 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?

An office building was purchased on December 9th several years ago for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10th year, the building was sold on March 10th. Calculate the maximum depreciation expense for the real property during the current year, rounded to the nearest whole number.

Teddy purchased only one asset during the current year. Teddy placed in service machinery (7-year property) on October 1st with a basis of $76,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation).

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?

Which of the following business assets is not depreciated?

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

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

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

An asset's capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are immediately expensed.

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately expensed for the year?

Littman LLC placed in service on July 29, 2014 machinery and equipment (7-year property) with a basis of $600,000. Littman's income for the current year before any depreciation expense was $100,000. Which of the following statements is true to maximize Littman's total depreciation expense for 2014? (Assume that the 2013 §179 limits are extended to 2014.)

Which of the allowable methods allows the most accelerated depreciation?

Like financial accounting, most business property must be capitalized for tax purposes.

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

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

Flax, LLC purchased only one asset during 2014. 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).