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

On May 15,2012,Brent purchased new farm equipment for $120,000.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.Determine the cost recovery deduction for 2012.

On February 15,2012,Martin signed a 20-year lease on a commercial building.In March 2012,Martin purchased and placed in service new seven-year class assets costing $400,000.In June 2012,Martin paid $200,000 for qualified leasehold real property improvements.Martin desires to take the maximum cost recovery deduction with respect to the assets in 2012.He takes additional first-year depreciation.Assuming taxable income is not a limitation,determine Martin's maximum cost recovery for 2012.

Motel buildings are classified as residential rental real estate.

Bhaskar purchased a new factory building on September 2,2012,for $2,000,000.He elected the alternative depreciation system (ADS).Determine the cost recovery deduction for 2013.

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.

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

Taxpayers may elect to use the straight-line method under MACRS for personalty.

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

Barry purchased a used business asset (seven-year property)on September 30,2012,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,nor did he elect straight-line cost recovery.Barry sold the asset on July 17,2013.Determine the cost recovery deduction for 2013.

Intangible drilling costs may be expensed rather than capitalized and written off through depletion.

On June 1,2012,Gabriella purchased a computer and peripheral equipment (five-year property)for $25,000.She used the assets 40% for business,50% for the production of income,and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

Augie purchased one new asset during the year (five-year property)on November 10,2012,at a cost of $450,000.She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $310,000.She takes additional first-year depreciation.Determine the total cost recovery deduction with respect to the asset for 2012.

Tom acquired a used five-year class asset on November 5,2012 for $20,000.This was the only asset Tom acquired in 2012.He placed the asset in service on January 20,2013.However,because the asset was purchased in 2012,Tom deducted regular MACRS cost recovery on the asset for the year 2012.He did not elect to expense any of the asset under § 179.In 2013,Tom purchased no assets and because he had no taxable income,he did not deduct any cost recovery.In 2014,Tom sold the five-year asset on September 25th.Determine the basis of the five-year asset at the time of the sale.

In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Bonnie purchased a new business asset (five-year property)on March 10,2012,at a cost of $30,000.She also purchased a new business asset (seven-year property)on November 20,2012,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnies takes additional first-year depreciation.Determine the cost recovery deduction for 2012 for these assets.

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

On April 5, 2013, Orange Corporation purchased, and placed in service, seven-year class assets costing $540,000 and five-year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation. Assume taxable income is not a limitation. Determine Orange Corporation’s cost recovery with respect to the assets for 2013.

Joe purchased a new five-year class asset on June 1,2012.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.Determine Joe's total cost recovery (including the § 179 deduction)for the year.

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 2012.