Exam 10: Property Acquisition and Cost Recovery

An asset's capitalized cost basis includes only the actual purchase price; whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $500,000. Of the amount, $325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization expense for the current year? (Round final answer to the nearest whole number.)

Clay LLC placed in service machinery and equipment (7-year property) with a basis of $3,450,000 on June 6, 2018. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation.) (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Used property is eligible for bonus depreciation.

An office building was purchased on December 9^th several years ago for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10^th year, the building was sold on March 10^th. Calculate the maximum depreciation expense for the real property during the current year, rounded to the nearest whole number. (Use MACRS Table 5)

Cost depletion is available to all natural resource producers.

Anne LLC purchased computer equipment (5-year property) on August 29 for $30,000 and used the half-year convention. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1)

Which of the following depreciation conventions are not used under MACRS?

Goodwill and customer lists are examples of §197 amortizable assets.

Arlington LLC purchased an automobile for $55,000 on July 5, 2018. What is Arlington's depreciation expense for 2018 if its business use percentage is 75 percent (ignore any possible bonus depreciation)? Exhibit 10-10

Crouch LLC placed in service on May 19, 2018 machinery and equipment (7-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1)

Janey purchased machinery on April 8^th of the current year. The relevant costs for the year are as follows: machinery for $10,000, $800 shipping, $50 for delivery insurance, $500 for installation, $750 for sales tax, $150 for the annual tune up, and $200 of property taxes (an annual tax on business property). What is Janey's tax basis for the machinery?

Tax depreciation is currently calculated under what system?

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year. (Use MACRS Table 5) (Round final answer to the nearest whole number.)

The mid-month convention applies to real property in the year of acquisition and disposition.

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2018 machinery and equipment (7-year property) with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, (but ignoring bonus expensing). (Use MACRS Table 1) (Round final answer to the nearest whole number.)

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than the amount of the allowable depreciation.

An example of an asset that is both personal-use and personal property is:

Wheeler LLC purchased two assets during the current year (a full 12-month tax year). Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2) (Round final answer to the nearest whole number.)