Deck 26: Depreciation, cost Recovery, amortization, and Depletion

Question 1

Land,buildings,equipment,and common stock are examples of tangible property.

Answer 1

False
Explanation:Stock is intangible property.

Question 2

MACRS recovery property includes tangible personal and real property that is used in a trade or business.

Answer 2

True
Explanation:Both tangible personal and real property used in a trade or business can be depreciated under MACRS.

Question 3

The basis of an asset must be reduced by the depreciation allowable.

Answer 3

True
Explanation:If the taxpayer fails to take depreciation,the basis is nonetheless reduced by the depreciation allowable.

Question 4

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.

Question 5

Sec.179 tax benefits are recaptured if at any time an asset is converted to personal use.

Question 6

Depreciable property includes business,investment,and personal-use assets.

Question 7

Personal property used in a rental activity held for investment qualifies for the Section 179 expensing election.

Question 8

Intangible assets are subject to MACRS depreciation.

Question 9

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

Question 10

On its tax return,a corporation will use the same depreciation,amortization and depletion methods used in its financial statements issued to shareholders.

Question 11

Under the MACRS rules,salvage value is not considered in the computation of the cost-recovery or depreciation amount.

Question 12

If personal-use property is converted to trade or business use,the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Question 13

Under the MACRS system,automobiles and computers are classified as seven-year property.

Question 14

The Section 179 expensing election is available on an annual basis for property purchased during the year.

Question 15

Section 179 allows taxpayers to immediately expense up to $510,000 for 2017 of the cost of real and personal property placed into service in a trade or business,subject to limitations.

Question 16

Under the MACRS system,depreciation rates for real property must always use the mid-month convention in the year of acquisition.

Question 17

In order for an asset to be depreciated in the year of purchase,it must be placed in service before year's end.

Question 18

Because Jim and his family enjoy camping,he bought a pickup truck last year for personal use.The truck cost $40,000.Jim is starting a landscaping business this year and will now be using the truck in the business full-time.Based on online searches,similar trucks are selling for $32,000.When determining his business income,Jim will be able to calculate depreciation on the truck,using the $40,000 cost as basis.

Question 19

In computing MACRS depreciation in the year of disposition of personal property used in a trade or business,the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.

Question 20

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Question 21

If the business use of listed property decreases to 50% or less of the total usage,the property is subject to depreciation recapture.

Question 22

If the business use of listed property is 50% or less of the total usage,the alternative depreciation system must be used.

Question 23

Expenditures that enlarge a building,any elevator or escalator,any structural component that benefits a common area or the internal structural framework are not considered qualified leasehold improvement property.

Question 24

When a taxpayer leases an automobile for 100% business purposes,the entire lease payment is deductible.

Question 25

Joan bought a business machine for $15,000.In a later year,she sold the machine for $12,800 when the total allowable depreciation is $8,500.The depreciation actually taken on the tax returns totaled $8,000.Joan must recognize a gain (or loss)of

A)no gain or loss.
B)($3,200).
C)$6,800.
D)$6,300.

Question 26

On January 3,2014,John acquired and placed into service business tools costing $10,000.The tools have a 3-year class life.No other assets were purchased during that year.The depreciation in 2017 for those tools is (Sec.179 and bonus depreciation were not applied)

A)$0.
B)$741.
C)$1,920.
D)$3,333.

Question 27

When depreciating 5-year property,the final year of depreciation will be year

A)3)
B)4)
C)5)
D)6)

Question 28

Once the business use of listed property falls to 50% or below,the alternative depreciation system must be used for the current year and all subsequent years,even if the business use percentage increases to more than 50% in a subsequent year.

Question 29

The election to use ADS is made on a year-by-year,property-class by property-class basis for real and personal property.

Question 30

Tronco Inc.placed in service a truck costing $40,000 on January 15 of this year.On November 1,the company placed in service $200,000 of construction equipment.Tronco is a calendar-year taxpayer.When calculating MACRS depreciation,Tronco must apply the mid-quarter convention to the construction equipment,but will use the half-year convention for the truck.

Question 31

If a new luxury automobile is used 100% for business and placed in service in 2016,the maximum MACRS depreciation on the vehicle for 2017 is $11,160.

Question 32

Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.

Question 33

In May 2017,Cassie acquired a machine for $30,000 to use in her business.The machine is classified as 5-year property.Cassie does not expense the property under Sec.179,and the machine is not eligible for bonus depreciation.Cassie's depreciation on the machine this year is

A)$3,000.
B)$6,000.
C)$12,000.
D)$15,000.

Question 34

In April 2017,Emma acquired a machine for $60,000 for use in her business.The machine is classified as 7-year property.Emma does not expense the asset under Sec.179,and it is not eligible for bonus depreciation.Emma's depreciation on the machine this year is

A)$30,000.
B)$60,000.
C)$6,428.
D)$8,574.

Question 35

Residential rental property is defined as property from which more than 80% of the gross rental income is rental income from dwelling units.

Question 36

A large SUV is placed in service in 2017.MACRS depreciation on an SUV weighing over 6,000 pounds is limited to $11,160 for the first year placed in service.

Question 37

Under the MACRS system,the same convention that applies in the year of acquisition (e.g. ,half-year,mid-quarter,or mid-month)also applies in the year of disposition.

Question 38

The mid-quarter convention applies to personal and real property.

Question 39

The MACRS system requires that residential rental property and nonresidential real property be depreciated using the straight-line method.

Question 40

The straight-line method may be elected for depreciating tangible personal property placed in service after 1986.

Question 41

On August 11,2017,Nancy acquired and placed into service residential rental property,which cost $430,000; the cost of the land has been excluded.Nancy annually elects the maximum allowed Sec.179 deduction.The total depreciation for the year is (rounded)

A)$5,865.
B)$4,141.
C)$5,117.
D)$15,636.

Question 42

William purchases nonresidential real property costing $300,000 and places it in service in March 2016.What is Lincoln's 2017 depreciation on the property?

A)$6,099
B)$7,692
C)$8,637
D)$10,908

Question 43

Fariq purchases and places in service in 2017 personal property costing $2,051,000.The property does not qualify for bonus depreciation.What is the maximum Sec.179 deduction that Fariq can deduct,ignoring any taxable income limitation?

A)$510,000
B)$0
C)$489,000
D)$479,000

Question 44

Sophie owns an unincorporated manufacturing business.In 2017,she purchases and places in service $2,037,000 of qualifying five-year equipment for use in her business.The equipment does not qualify for bonus depreciation.Her taxable income from the business before any Sec.179 deduction is $450,000.Sophie elects to expense the maximum under Sec.179.What is Sophie's maximum total cost recovery deduction for 2017?

A)$407,400
B)$450,000
C)$756,800
D)$809,800

Question 45

Quattro Enterprises,a calendar-year taxpayer,leases the twentieth floor of a building downtown.Due to employment expansion,it renovated the entire office space layout,spending $600,000 on these leasehold improvements.The office renovation was completed in May.Quattro also spent $510,000 on new computer systems and office furniture and fixtures in May on which the business used its entire Sec.179 allowance for 2017.What is the maximum depreciation deduction available in 2017 for the leasehold improvements?

A)$9,630
B)$40,000
C)$310,000
D)$20,000

Question 46

Richards Corporation reports taxable income exceeding $1.5 million per year.In 2017,it acquired and placed in service $1,610,000 of new equipment.The equipment,its only property addition this year,is five-year property and was shipped directly from the factory.What is the maximum tax deduction it can take this year with respect to this new equipment?

A)$1,160,000
B)$966,000
C)$730,000
D)$1,060,000

Question 47

On April 12,2016,Suzanne bought a computer for $20,000 for business use.This was the only purchase for that year.Suzanne used the most accelerated depreciation method available but did not elect Sec.179.Bonus depreciation was not available.Suzanne sells the machine in 2017.The depreciation on the computer for 2017 is

A)$2,000.
B)$3,200.
C)$4,000.
D)$6,400.

Question 48

Terra Corporation,a calendar-year taxpayer,purchases and places into service machinery with a 7-year life that costs $650,000.Neither the mid-quarter convention,nor bonus depreciation apply.Terra elects to depreciate the maximum under Sec.179.Terra's taxable income for the year before the Sec.179 deduction is $700,000.What is Terra's total depreciation deduction related to this property (rounded to the nearest dollar)?

A)$650,000
B)$530,006
C)$92,885
D)$602,885

Question 49

Chahana acquired and placed in service $665,000 of equipment on August 1,2017 for use in her sole proprietorship.The equipment is 5-year recovery property.No other acquisitions are made during the year.Chahana elects to expense the maximum amount under Sec.179.Assuming the property does not qualify for bonus depreciation,Chahana's total deductions for the year (including Sec.179 and depreciation)are

A)$510,000.
B)$133,000.
C)$643,000.
D)$543,000.

Question 50

Caitlyn purchases and places in service property costing $450,000 in 2017.She wants to elect the maximum Sec.179 deduction allowed.The property does not qualify for bonus depreciation.Her business income is $400,000.What is the amount of her allowable Sec.179 deduction and carryover,if any?

A)
B)
C)
D)

Question 51

For real property placed in service after 1986,depreciation under the MACRS system is calculated using the

A)straight-line method and a half-year convention in the year of acquisition and in the year of disposition.
B)straight-line method and a mid-month convention in the year of acquisition and in the year of disposition.
C)200% DB method and a mid-month convention in the year of acquisition and in the year of disposition.
D)200% DB method and a half-year convention in the year of acquisition and in the year of disposition.

Question 52

Which of the following statements regarding Sec.179 is true?

A)If a taxpayer places in service property costing more than the Sec.179 ceiling on the amount of property placed in service,the excess can be carried over to subsequent years.
B)Amounts of the Sec.179 election in excess of the taxable income limitation are carried forward.
C)Sec.179 carryforwards expire after five years.
D)All of the above statements are true.

Question 53

Ilene owns an unincorporated manufacturing business.In 2017,she purchases and places in service $2,036,000 of qualifying five-year equipment for use in her business.The property does not qualify for bonus depreciation.Her taxable income from the business before any Sec.179 deduction is $400,000.Ilene takes the maximum allowable deduction under section 179.Which of the following statements is true regarding the Sec.179 election?

A)Ilene can deduct $510,000 as a Sec.179 deduction in 2017,with no carryover to next year.
B)Ilene can deduct $504,000 as a Sec.179 deduction in 2017,with a $6,000 carryover to next year.
C)IIene can deduct $400,000 as a Sec.179 deduction in 2017; $104,000 may be carried over to next year.
D)Ilene can deduct $400,000 as a Sec.179 deduction in 2017 ,with no carryover to next year.

Question 54

Trenton Corporation places in service $10 million of equipment on June 1,2017.The equipment is five-year property,and it is not "used" property.What is the maximum cost recovery deduction Trenton Corporation is allowed this year with respect to this property?

A)$2,000,000
B)$5,000,000
C)$6,200,000
D)$6,000,000

Question 55

In November 2017,Kendall purchases a computer for $4,000.She does not use Sec.179 expensing,and the property does not qualify for bonus depreciation.She only uses the most accelerated depreciation method possible.The computer is the only personal property which she places in service during the year.What is her total depreciation deduction for this year?

A)$200
B)$572
C)$800
D)$1,000

Question 56

On October 2,2017,Dave acquired and placed into service 5-year business equipment costing $70,000.No other acquisitions were made during the year.Dave does not use Sec.179 expensing,and the property does not qualify for bonus depreciation.The depreciation for this year,using the most accelerated method possible,is

A)$0.
B)$3,500.
C)$7,000.
D)$14,000.

Question 57

Harrison acquires $65,000 of 5-year property in June 2015 that is required to be depreciated using the mid-quarter convention (because of other purchases that year).He did not elect Sec.179 immediate expensing.Bonus depreciation was not available.If Harrison sells the property on August 23,2017,what is the amount of depreciation claimed in 2017?

A)$6,500.00
B)$7,312.50
C)$11,700.00
D)$9,289.00

Question 58

Paul bought a computer for $15,000 for business use on March 18,2015.This was his only purchase for that year.Paul used the most accelerated depreciation method available,but did not elect Sec.179.Bonus depreciation was not available.Paul sells the machine in 2017.The depreciation on the computer for 2017 is

A)$0.
B)$1,440.
C)$1,500.
D)$2,880.

Question 59

On November 3rd of this year,Kerry acquired and placed into service 7-year business equipment costing $80,000.In addition,on May 5th of this year,Kerry had also placed in business use 5-year recovery property costing $15,000.Kerry did not elect Sec.179 immediate expensing,and the assets are not eligible for bonus depreciation.No other assets were purchased during the year.The depreciation for this year is

A)$3,606.
B)$6,606.
C)$13,576.
D)$14,432.

Question 60

Atiqa took out of service and sold a residential rental property on October 31 of this year.She had originally acquired the property in July ten years ago.The building (excluding the value of the land)cost $1,000,000.How much is her current year depreciation deduction?

A)$30,300
B)$36,360
C)$18,182
D)$28,785

Question 61

Greta,a calendar-year taxpayer,acquires 5-year tangible personal property in 2017 and places the property in service on the following schedule:
Greta elects to expense the maximum under Sec.179,and selects the property placed into service on November 8.The property is not eligible for bonus depreciation.Her business's taxable income before Sec.179 is $790,000.What is the total cost recovery deduction (depreciation and Sec.179)for 2017?

Question 62

Everest Corp.acquires a machine (seven-year property)on January 10,2017 at a cost of $2,042,000.Everest makes the election to expense the maximum amount under Sec.179.The property is not eligible for bonus depreciation.
a.Assume that the taxable income from trade or business is $1,500,000.
(1)What is the amount of the Sec.179 expensing deduction for the current year?
(2)What is the amount of the Sec.179 carryover to the next tax year?
(3)What is the amount of depreciation allowed?
b.Assume instead that the taxable income from trade or business is $400,000.
(1)What is the amount of the Sec.179 expensing deduction for the current year?
(2)What is the amount of the Sec.179 carryover to the next tax year?
(3)What is the amount of depreciation allowed this year?

Question 63

Mehmet,a calendar-year taxpayer,acquires 5-year tangible personal property in 2017 and does not use Sec.179.The property does not qualify for bonus depreciation.Mehmet places the property in service on the following schedule:
What is the total depreciation for 2016?

Question 64

In the current year George,a college professor,acquired a computer system (5-year property)for $1,000 and used the computer 80% for teaching and research-related activities and the remaining 20% for personal use.Because George's employer provides him with a computer in his office at the university,the employer does not require him to have a computer at home.No election was made regarding Sec.179.The maximum depreciation deduction is

A)$0.
B)$200.
C)$160.
D)$800.

Question 65

Enrico is a self-employed electrician.In May of the current year,Enrico acquired a used van (5-year property)for $12,000.He used the van 80% for business and 20% for personal purposes.Enrico does not take any Sec.179 deduction.The maximum depreciation deduction for the van is

A)$1,200.
B)$2,400.
C)$6,720.
D)$1,920.

Question 66

On June 30,2017,Temika purchased office furniture (7-year property)costing $400,000 and computers (5-year property)with a cost of $250,000.She uses Sec.179,but the assets do not qualify for bonus depreciation.Her business income is $790,000 without considering Sec.179.How should she allocate the Sec.179 election in order to maximize her total cost recovery deductions (depreciation and Sec.179)for 2017 ?

Question 67

On May 1,2008,Empire Properties Corp. ,a calendar-year taxpayer,purchased an apartment building for $1,000,000,of which $400,000 was allocable to the land.The corporation sold the property this year on September 23,2017.
a.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2008?
b.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2017?

Question 68

In January of 2017,Brett purchased a Porsche for $100,000 to be used in his business.Brett drove the car 83 percent of the time for business.What is the maximum amount that Brett may deduct in 2017?

Question 69

In July of 2017,Pat acquired a new automobile for $28,000 and used the automobile 80% for business.Pat can take a maximum depreciation deduction in 2017 of

A)$8,928.
B)$2,528.
C)$22,400.
D)$13,440.

Question 70

If the business usage of listed property is less than or equal to 50% of its total usage,depreciation is calculated using the

A)regular MACRS tables.
B)alternative depreciation system.
C)regular MACRS tables and a mid-month convention.
D)It may not be depreciated.

Question 71

Jack purchases land which he plans on developing as a golf course.The land costs $20,000,000 and the cost of clearing the land,earthmoving,constructing hazards,bunkers and greens,and installing irrigation systems will cost an additional $6,000,000.What tax issues should Jack consider?

Question 72

In April of 2016,Brandon acquired five-year listed property (not an automobile)for $30,000 and used it 70% for business.No election was made regarding Sec.179 and bonus depreciation was not available.In 2017,his business use of the property dropped to 40%.Which of the following statements is true?

A)The change does not affect Brandon's previous depreciation.
B)Brandon must recapture $2,100 as ordinary income.
C)Brandon must recapture $4,200 as ordinary income.
D)Brandon must amend the previous tax return and recompute depreciation.

Question 73

All of the following are true with regard to the alternative depreciation system except

A)the principal type of property for which ADS is required is any tangible property which is used predominantly outside of the United States.
B)the ADS election is available to real property on a property by property basis.
C)the ADS election is available to personal property on a property by property basis.
D)once the ADS election is made for specified property,it is irrevocable.

Question 74

In July of 2017,Pat acquired a new automobile for $28,000 and used the automobile 80% for business.In 2018 his business use of the auto was 70%.Pat's depreciation deduction for 2018 will be

A)$6,272.
B)$5,100.
C)$3,570.
D)$4,080.

Question 75

In August 2017,Tianshu acquires and places into service 7-year business equipment (tangible personal property qualifying under Sec.179,but not for bonus depreciation)for $70,000.This is the only asset that she purchased during the year; her taxable income from her trade or business is $23,000.She decides to limit her Sec.179 election to the maximum amount currently deductible in her business for the current year.What is her maximum cost recovery (Sec.179 and depreciation)deduction for 2017?

Question 76

Enrico is a self-employed electrician.In May of the current year,Enrico acquired a used van (5-year property)for $12,000.He used the van 30% for business.The maximum depreciation deduction for the van is

A)$360.
B)$720.
C)$2,400.
D)$1,980.

Question 77

On May 1,2012,Empire Properties Corp. ,a calendar-year taxpayer,purchased an office building for $1,000,000,of which $400,000 was allocable to the land.The corporation sold the property this year on September 23,2017.
a.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2012?
b.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2017?

Question 78

On January l,Grace leases and places into service an automobile with a FMV of $38,000.The business use of the automobile is 60%.The "inclusion amount" for the initial year of the lease from the IRS tables is $40.The annual lease payments are $8,000.What are the tax consequences of this lease?

A)deduction for lease payments of $4,776
B)deduction for lease payments of $4,800
C)deduction for lease payments of $4,760
D)deduction for lease payment of $1,896

Question 79

Arthur uses a Chevrolet Suburban (GVWR 7,500 pounds)100% for business.He acquired and placed the vehicle in service in his business in January of the current year.The vehicle cost $65,000.The maximum deduction allowed this year is

A)$13,000.
B)$38,000.
C)$25,000.
D)$33,000.

Question 80

During the year 2017,a calendar-year taxpayer,Marvelous Munchies,a chain of specialty food shops,purchased equipment as follows:
Assume the property is all 5-year property,but does not qualify for bonus depreciation.What is the maximum depreciation that may be deducted for the assets this year,2017,assuming Sec.179 expensing is not elected?