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

The factor for determining the cost recovery for eligible real estate under MACRS,in the year of disposition,is taken from the month of the disposition.

Goodwill associated with the acquisition of a business cannot be amortized.

Doug purchased a new factory building on January 15,1990,for $400,000.On March 1,2015,the building was sold.Determine the cost recovery deduction for the year of the sale;Doug did not use the MACRS straight-line method.

George purchases used seven-year class property at a cost of $200,000 on April 20,2015.Determine George's cost recovery deduction for 2015 for alternative minimum tax purposes,assuming George does not elect § 179 and does not take additional first-year depreciation,if available.

On May 15,2015,Brent purchased new farm equipment for $200,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.Brent does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

The § 179 deduction can exceed $500,000 in 2015 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

The only asset Bill purchased during 2015 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2015.

If more than 40% of the value of property,other than real property,is placed in service during the last quarter,all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

On March 3,2015,Sally purchased and placed in service a building costing $12,000,000.The building has 10 floors.The bottom three floors are rented out to businesses.The top seven floors are residential apartments.The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000.Determine Sally's cost recovery for the building in 2015.

On February 21,2015,Joe purchased new farm equipment for $600,000.Joe elects to not have the uniform capitalization rules apply to his farming business.He does not claim additional first-year depreciation (if available).If Joe elects § 179,what is the maximum cost recovery deduction for this purchase for 2015?

Howard's business is raising and harvesting peaches.On March 10,2015,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not make an election to expense assets under § 179 and does not take additional first-year depreciation (if available).Determine the cost recovery deduction for 2015.

If an automobile is placed in service in 2015,the limitation for cost recovery in 2017 will be based on the cost recovery limits for the year 2015.

James purchased a new business asset (three-year personalty) on July 23,2015,at a cost of $40,000.James takes additional first-year depreciation but does not elect Section 179 expense on the asset.Determine the cost recovery deduction for 2015.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Pat purchased a used five-year class asset on March 15,2015,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2015 for earnings and profits purposes.

On July 10,2015,Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2015,assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation (if available).

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

The key date for calculating cost recovery is the date the asset is placed in service.

For a new car that is used predominantly in business,the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.