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

Land improvements are generally not eligible for cost recovery.

The amortization period in 2012 for $4,000 of startup expenses if no election is made is 180 months.

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are as follows: If Tara sells the machine after three years for $15,000,how much gain should she recognize?

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 will be allowed 1.5 months of cost recovery.

White Company acquires a new machine (seven-year property)on January 10,2012,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2012 assuming White has taxable income of $800,000.

Rustin bought used 7-year class property on May 15, 2013, for $728,000. Rustin elects § 179 and straight-line cost recovery. Rustin’s taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum write-off Rustin can take in 2013.

Rod paid $950,000 for a new warehouse on April 14,2012.He sold the warehouse on September 29,2017.Determine the cost recovery deduction for 2012 and 2017.

Jim acquires a new seven-year class asset on September 20,2012,for $80,000.He placed the asset in service on October 5,2012.He does not elect to expense any of the asset under § 179 or elect straight-line,cost recovery.He takes additional first-year depreciation.He sells the asset on August 25,2013.This is the only asset he acquires in 2012.Determine Jim's cost recovery in 2012 and 2013.

When lessor owned leasehold improvements are abandoned because of the termination of the lease,a loss can be taken for the unrecovered basis.

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

All eligible real estate under MACRS is permitted one-half month of cost recovery in the month of disposition.

Alice purchased office furniture on September 20,2012,for $100,000.On October 10,she purchased business computers for $80,000.Alice did not elect to expense any of the assets under § 179,nor did she elect straight-line cost recovery.She did not take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2012.

On May 30,2012,Jane signed a 20-year lease on a factory building to use for her business.The lease begins on June 1,2012.In August 2012,Jane paid $300,000 for qualified leasehold improvements to the building.Jane takes additional first-year depreciation.Determine Jane's total deduction with respect to the leasehold improvements for 2012.

If a used $15,000 automobile used 100% for business in the first year (2012)fails the 50% business usage test in the second year,no cost recovery will be recaptured.

Hazel purchased a new business asset (five-year asset)on September 30,2012,at a cost of $100,000.On October 4,2012,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2012.The only election with respect to the asset was not to take § 179.On August 20,2013,Hazel sold the asset.Determine the cost recovery for 2013 for the asset.

The basis of an asset on which $139,000 has been expensed under § 179 will be reduced by $139,000,even if $139,000 cannot be expensed in the current year because of the taxable income limitation.

Diane purchased a factory building on November 15,1993,for $5,000,000.She sells the factory building on February 2,2012.Determine the cost recovery deduction for the year of the sale.

Carlos purchased an apartment building on November 16,2012,for $3,000,000.Determine the cost recovery for 2012.

On June 1,2012,Sam purchased new farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Sam does not take additional first-year depreciation.Determine the cost recovery deduction for 2012.

Janet purchased a new car on June 5,2012,at a cost of $20,000.She used the car 80% for business and 20% for personal use in 2012.She used the automobile 40% for business and 60% for personal use in 2013.Janet takes additional first-year depreciation.Determine Janet's cost recovery recapture for 2013.