Exam 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

To compute depreciation using MACRS on an asset purchased today,you need to know I.the asset's depreciable basis. II.the recovery period of the asset. III.the first and last year convention that applies to the asset's class. IV.whether you want to minimize or maximize the current year's depreciation. ​

Match each statement with the correct term below. -Depreciable basis

Contrast the facts and circumstances depreciation approach commonly used before 1981 with Modified Accelerated Cost Recovery (MACRS).

To be considered predominately used in a trade or business under the listed property rules,more than 75% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

On June 1,2016,AZ Construction Corporation places a $500,000 crane (7 year life)in service.It placed no other assets in service during the year.What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2016?

Match each statement with the correct term below. -Adjusted basis

MACRS eliminates several sources of potential conflict between the IRS and taxpayers concerning an asset's useful life and the calculation of the depreciation deduction.

Which of the following would not be considered to be Listed Property for depreciation purposes?

In 2016,Henry purchases $210,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2016?

Lindale Rentals places an apartment building in service on November 22,2016.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2016 depreciation deduction on the property?

Match each statement with the correct term below. -Capital recovery

During 2016,Linda has a $12,000 net loss from her beauty salon.Her spouse,Bart,earns $23,000 as a tennis professional.During 2016,Bart purchases $215,000 of Section 179 equipment for his business.What is the amount of Linda and Bart's Section 179 deduction for 2016?

Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2016 MACRS depreciation deduction?

Fonzi purchases a personal computer for $4,000 on March 19,2016.He used it personally for correspondence,keeping track of personal finances,and on-line data base services.His children used it for schoolwork and games.On June 1,2016,Fonzi starts a new secretarial service business and he converts the personal computer to 100% business use.The computer is worth $2,500 at the time (similar computers were selling for that amount in the used-computer market). a.What is Fonzi's depreciable basis? Briefly explain your reasoning. b.Fonzi desires to minimize depreciation deductions on the computer. What is the minimum allowable depreciation for 2016?

Discuss why listed property gets special attention.

Which of the following intangible assets is not subject to the 15-year amortization period?

Sorensen Corporation purchases equipment in 2016 for $200,000.Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible.How much can Sorensen deduct under Section 179?

On August 3,2016,Yang purchases office furniture (7-year property)costing $21,000 for use in her business.She does not wish to use the Section 179 election and makes the election to use the straight-line method over the MACRS recovery period.What is Yang's 2016 cost recovery deduction?

Match each statement with the correct term below. -Listed property

Eduardo is a single taxpayer with a farming operation that suffered a net loss of $30,000 in 2016.In addition,he earned $50,000 from his accounting firm.Eduardo purchased $50,000 of equipment for his farm.He wants to maximize his cost recovery deduction and believes the Section 179 election will help achieve that goal.What is the amount of the maximum Section 179 deduction Eduardo can use? Explain the optimum approach to attain his goal.Assume Eduardo's total taxable business income in 2017 will be $60,000,and he plans to add about $20,000 of equipment to the farm operation.