Exam 7: Accounting Periods and Methods and Depreciation

On May 2, 2016, Scott purchased a commercial building. The cost basis assigned to the building is $600,000. Scott also owns a residential apartment building he purchased on June 15, 2015 with a cost basis of $400,000. a.​ Calculate Scott's total depreciation deduction for the buildings for 2016, using the Modified Accelerated Cost Recovery System. b.​ Calculate Scott's total depreciation deduction for the buildings for 2017, using the Modified Accelerated Cost Recovery System.

Patrick purchased a used passenger automobile on June 1, 2016. He paid $19,000 for the automobile. During 2016, he uses the automobile 75 percent of the time for business. Patrick wishes to claim the maximum amount of depreciation possible (no bonus depreciation or election to expense). a.Calculate Patrick's depreciation expense on the automobile for 2015 b.​ Calculate Patrick's depreciation expense on the automobile for 2017, assuming the same 75 percent business use.

Bonus depreciation in 2016 permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

If land declines in value, it may be depreciated for tax purposes.

ABC Corp bought a production machine on January 1, 2014 for $31,250. The company elected out of Section 179 expensing and elected out of claiming bonus depreciation in 2014, and is depreciating the machine using the MACRS accelerated depreciation tables for 5-year property. What is the 2016 depreciation (year 3) deduction for the machine?

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

Section 179 immediate expensing can be taken on used property​ .

On January 1, 2016, Ted purchased a small software company for $200,000. He paid $120,000 for the fixed assets of the company and $80,000 for goodwill. How much amortization may Ted deduct on his 2016 tax return for the purchased goodwill?

Mark the correct answer. In cash basis accounting, for tax purposes:

A taxpayer places a $50,000 5-year recovery period asset in service in 2016. This is the only asset placed in service in 2016. Assuming half-year convention, no election to expense and no income limitation, what is the amount of total cost recovery deduction?​

Lanyard purchased office equipment (7-year property) for use in his business. He paid $100,000 for the equipment on July 1, 2016. Lanyard did not purchase any other property during the year. For 2016, his business had net income of $350,000, before depreciation and before considering the election to expense. a.What is the maximum amount that Lanyard can deduct in 2016 under the election to expense? b.​ ​ What is the total depreciation (regular depreciation and the amount allowed under the election to expense) on the office equipment for 2016, assuming Lanyard uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense? c.What is Lanyard's total depreciation deduction for 2017 on the 2016 purchase of equipment?

John purchases residential rental property on June 30, 2016 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2016?

Sales of property at a gain may be restricted under the related party rules of the Internal Revenue Code.

​An asset (not an automobile) put in service in June 2016 has a depreciable basis of $535,000, a recovery period of 5 years, and is the only asset placed in service during the year. Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2016 (assume no income limitation)?

Jenny constructed a building for use as a residential rental property. The cost of the building was $82,488, and it was placed in service on August 1, 1992. The building has a 27.5-year MACRS life. What is the amount of depreciation on the building for 2016 for tax purposes?

Scott purchases a small business from Lew on July 1, 2016. He paid the following amounts for the business: ​ a.How much of the $458,000 purchase price is for Section 197 intangible assets? b.What amount can Scott deduct on his 2016 tax return as Section 197 intangible amortization?

In applying the statutory depreciation percentages from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

Calculate the following amounts: a.The first year of depreciation on a residential rental building costing $100,000, purchased on November 30. b.The first year of depreciation on an auto used 100 percent in business, costing $30,000, purchased in May 2016.(No bonus depreciation deducted). c.The second year of depreciation on a computer used exclusively for business, costing $7,000, purchased May 2015. d.The third year of depreciation on business furniture costing $1,000, purchased in July 2014, using the half-year convention and accelerated depreciation.

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

The tax law imposes restrictions on the depreciation of "listed" property such as automobiles and computers.