Exam 8: Depreciation, cost Recovery, amortization, and Depletion

Bhaskar purchased a new factory building and land on September 10,2015,for $3,700,000.($500,000 of the purchase price was allocated to the land. ) He elected the alternative depreciation system (ADS).Determine the cost recovery deduction for 2016.

Tan Company acquires a new machine (ten-year property) on January 15,2015,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2015,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first-year depreciation if available.Determine the total deductions in calculating taxable income related to the machines for 2015.

MACRS depreciation is used to compute earnings and profits.

Hazel purchased a new business asset (five-year asset) on September 30,2015,at a cost of $100,000.On October 4,2015,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2015.Hazel did not elect § 179 or additional first-year depreciation if available.On August 20,2016,Hazel sold the asset.Determine the cost recovery for 2016 for the asset.

Property which is classified as personalty may be depreciated.

Barry purchased a used business asset (seven-year property) on September 30,2015,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,did not take additional first-year depreciation (if available),and did not elect straight-line cost recovery.Barry sold the asset on July 17,2016.Determine the cost recovery deduction for 2016.

On March 1,2015,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2015,she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table for auto leases is $70,determine Lana's gross income attributable to the lease.

On August 20,2015,May placed in service a building for her business.On November 28,2015,May paid $80,000 for improvements to the building.What is May's cost recovery deduction for the building improvements in 2015?

Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Under the alternative depreciation system (ADS),the half-year convention must be used for personalty.

Discuss the effect on the cost recovery method of a taxpayer election if the uniform capitalization rules apply to a farming business.

Property used for the production of income is not eligible for § 179 expensing.

Tom purchased and placed in service used office furniture on January 3,2015,for $40,000.Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes.The accountant also used the same depreciation amounts when filing Tom's income tax returns.On January 10,2020,Tom sold the furniture.Determine the tax basis of the furniture at the time of the sale.

Augie purchased one new asset during the year (five-year property) on November 10,2015,at a cost of $650,000.She would like to use the § 179 election and will also take additional first-year depreciation,if available.The income from the business before the cost recovery deduction and the § 179 deduction was $600,000.Determine the total cost recovery deduction with respect to the asset for 2015.

Under the MACRS straight-line election for personalty,only the half-year convention is applicable.

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2015.

On June 1,2015,Red Corporation purchased an existing business.With respect to the acquired assets of the business,Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2015 for the patent.

Joe purchased a new five-year class asset on June 1,2015.The asset is listed property (not an automobile).It was used 55% for business and 45% for the production of income.The asset cost $1,000,000.Joe made the § 179 election.Joe's taxable income would not create a limitation for purposes of the § 179 deduction.Joe does not take additional first-year depreciation (if available).Determine Joe's total cost recovery (including the § 179 deduction) for the year.

Intangible drilling costs must be capitalized and recovered through depletion.