Exam 9: Property Acquisition and Cost Recovery

Lenter LLC placed in service on April 29, 2014 machinery and equipment (7-year property) with a basis of $600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing). Assume that the 2013 §179 limits are extended to 2014:

Tax cost recovery methods do not include:

Beth's business purchased only one asset during the current 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):

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

Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization expense for the current year, rounded to the nearest whole number?

The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

Oksana started an LLC on November 2 of the current year. She incurred $30,000 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?

Significant limits are placed on the depreciation of luxury automobiles.

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

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.

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 10th year, calculate Simmons' maximum depreciation in the 10th year:

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.

Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the mid-quarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:

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.

Sairra, LLC purchased only one asset during the current year. Sairra placed in service furniture (7-year property) on April 16 with a basis of $25,000. Calculate the maximum depreciation expense for the current year, rounding to a whole number (ignoring §179 and bonus depreciation):

Geithner LLC patented a process it developed in the current year. The patent is expected to create benefits for Geithner over a 10 year period. The patent was issued on April 15th and the legal costs associated with the patent were $43,000. In addition, Geithner had unamortized research expenditures of $15,000 related to the process. What is the total amortization expense Geithner may deduct during the current year?

Lax, LLC purchased only one asset during the current year. Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation):

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly. Occasionally, she uses the equipment for personal use. During the first year, Phyllis used the equipment for business use 70 percent of the time; however, during the current (second) year the business use fell to 40 percent. Assume that the equipment is seven-year MACRS property and is under the half-year convention. Assume the ADS recovery period is 10 years. What is the depreciation allowance for the current year, rounded to the nearest whole number?

Boxer LLC has acquired various types of assets recently. Below is a list of assets acquired during 2013 and 2014: Asset Cost Basis Convention Date Placed in Service Machinery 25,000 Half year January 24, 2013 Warehouse 800,000 Mid month August 1, 2013 Furniture 100,000 October 5, 2014 Computer equipment 65,000 October 10, 2014 Office equipment 34,000 September 28, 2014 Automobile 35,000 July 15, 2014 Office building 800,000 September 24, 2014 Boxer did not elect §179 expense or potential bonus depreciation in 2013, but would like to elect §179 expense for 2014 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2014, rounded to the nearest whole number (ignore bonus depreciation for 2014). If necessary, use the 2013 luxury automobile limitation amount for 2014 and assume that the 2013 §179 limits are extended to 2014.

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.