Deck 8: Depreciation, Cost Recovery, Amortization, and Depletion

Question 1

The § 179 deduction can exceed $510,000 in 2017 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

Answer 1

False

Question 2

The factor for determining the cost recovery for eligible real estate under MACRS, in the year of disposition, is taken from the month of the disposition.

Answer 2

False

Question 3

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

Answer 3

False

Question 4

All personal property placed in service in 2017 and used in a trade or business qualifies for additional first-year depreciation.

Question 5

Antiques may be eligible for cost recovery if they are used in a trade or business.

Question 6

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

Question 7

Land improvements are generally not eligible for cost recovery.

Question 8

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

Question 9

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Question 10

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Question 11

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

Question 12

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.

Question 13

Under the MACRS straight-line election for personalty, only the half-year convention is applicable.

Question 14

The cost recovery period for 3-year class property is 4 years.

Question 15

Motel buildings have a cost recovery period of 27.5 years.

Question 16

Property which is classified as personalty may be depreciated.

Question 17

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

Question 18

The key date for calculating cost recovery is the date the asset is placed in service.

Question 19

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 placed in service in the second quarter will be allowed 7.5 months of cost recovery.

Question 20

For personal property placed in service in 2017, the § 179 maximum deduction is limited to $510,000.

Question 21

A taxpayer may elect to use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.

Question 22

All listed property is subject to the substantiation requirements of § 274.

Question 23

MACRS depreciation is used to compute earnings and profits.

Question 24

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

Question 25

For real property, the ADS convention is the mid-month convention.

Question 26

If an automobile is placed in service in 2017, the limitation for cost recovery in 2019 will be based on the cost recovery limits for the year 2017.

Question 27

The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.

Question 28

The luxury auto cost recovery limits applies to all automobiles.

Question 29

A used $35,000 automobile that is used 100% for business is placed in service in 2017. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

Question 30

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000, even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

Question 31

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

Question 32

Goodwill associated with the acquisition of a business cannot be amortized.

Question 33

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Question 34

If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.

Question 35

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Question 36

For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

Question 37

Property used for the production of income is not eligible for § 179 expensing.

Question 38

A purchased trademark is a § 197 intangible.

Question 39

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

Question 40

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

Question 41

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:

A)In the current year using a mid-quarter convention.
B)In the current year using a half-year convention.
C)In the following year using a mid-quarter convention.
D)In the following year using a half-year convention.
E)None of the above.

Question 42

On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

A)$70,000
B)$90,000
C)$120,000
D)$140,000
E)None of the above

Question 43

Hazel purchased a new business asset (five-year asset) on September 30, 2017, at a cost of $100,000. On October 4, 2017, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2017. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2018, Hazel sold the asset. Determine the cost recovery for 2018 for the asset.

A)$14,250
B)$19,000
C)$23,750
D)$38,000
E)None of the above

Question 44

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 computed as follows. If Tara sells the machine after three years for $15,000, how much gain should she recognize?

A)$3,480
B)$6,360
C)$9,240
D)$11,480
E)None of the above

Question 45

On May 30, 2016, Jane purchased a factory building to use for her business. In August 2017, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2017.

A)$2,889
B)$4,173
C)$4,815
D)$25,000
E)None of the above

Question 46

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Question 47

White Company acquires a new machine (seven-year property) on January 10, 2017, at a cost of $610,000. White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2017 assuming White has taxable income of $800,000.

A)$87,169
B)$348,585
C)$510,000
D)$524,290
E)None of the above

Question 48

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2017, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

A)$0
B)$1,587
C)$2,645
D)$12,696
E)None of the above

Question 49

In 2016, Gail had a § 179 deduction carryover of $30,000. In 2017, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2017 is $140,000. Determine Gail's § 179 deduction for 2017.

A)$25,000
B)$115,000
C)$130,000
D)$140,000
E)None of the above

Question 50

Bonnie purchased a new business asset (five-year property) on March 10, 2017, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2017, 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. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2017 for these assets.

A)$5,858
B)$7,464
C)$9,586
D)$19,429
E)None of the above

Question 51

Cora purchased a hotel building on May 17, 2017, for $3,000,000. Determine the cost recovery deduction for 2018.

A)$48,150
B)$59,520
C)$69,000
D)$76,920
E)None of the above

Question 52

Alice purchased office furniture on September 20, 2016, for $100,000. On October 10, 2016, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2017. Alice did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2017. ​

A)$6,426
B)$14,710
C)$25,722
D)$30,290
E)None of the above

Question 53

Intangible drilling costs must be capitalized and recovered through depletion.

Question 54

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2017. Determine the cost recovery deduction for the year of the sale.

A)$16,025
B)$19,838
C)$26,458
D)$158,750
E)None of the above

Question 55

Tan Company acquires a new machine (ten-year property) on January 15, 2017, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2017, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2017.

A)$24,000
B)$25,716
C)$102,000
D)$132,858
E)None of the above

Question 56

Carlos purchased an apartment building on November 16, 2017, for $3,000,000. Determine the cost recovery for 2017.

A)$9,630
B)$11,910
C)$13,950
D)$22,740
E)None of the above

Question 57

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

Question 58

James purchased a new business asset (three-year personalty) on July 23, 2017, at a cost of $40,000. James takes additional first-year depreciation but does not elect Section 179 expense on the asset. Determine the cost recovery deduction for 2017.

A)$8,333
B)$26,666
C)$33,333
D)$41,665
E)None of the above

Question 59

Barry purchased a used business asset (seven-year property) on September 30, 2017, 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, did not take additional first-year depreciation, and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2018. Determine the cost recovery deduction for 2018.

A)$19,133
B)$24,490
C)$34,438
D)$55,100
E)None of the above

Question 60

The amortization period for $58,000 of startup expenses is 180 months.

Question 61

On March 1, 2017, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2017, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

A)$0
B)$35
C)$59
D)$70
E)None of the above

Question 62

Tom purchased and placed in service used office furniture on January 3, 2017, for $40,000. Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Tom's income tax returns. On January 10, 2022, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.

Question 63

The only asset Bill purchased during 2017 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179 whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2017.

A)$1,428
B)$2,499
C)$26,749
D)$33,375
E)None of the above

Question 64

On July 17, 2017, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2018, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2018.

A)$0
B)$528
C)$2,000
D)$2,500
E)None of the above

Question 65

Mary purchased a new five-year class asset on March 7, 2017. The asset was listed property (not an automobile). It was used 60% for business and the rest of the time for personal use. The asset cost $900,000. Mary made the § 179 election. The income from the business before the § 179 deduction was $600,000. Mary also takes additional first-year depreciation. Determine the total deductions with respect to the asset for 2017.

A)$180,000
B)$378,000
C)$528,000
D)$600,000
E)None of the above

Question 66

Jim acquires a new seven-year class asset on September 20, 2017, for $80,000. He placed the asset in service on October 5, 2017. 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, 2018. This is the only asset he acquires in 2017. Determine Jim's cost recovery in 2017 and 2018.

Question 67

Orange Corporation begins business on April 2, 2017. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2017.

A)$0
B)$3,200
C)$4,267
D)$7,950
E)None of the above

Question 68

On June 1, 2017, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

A)$0
B)$241
C)$907
D)$1,687
E)None of the above

Question 69

On January 15, 2017, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Vern incurred expenses during 2017 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2017.

A)$150,000
B)$175,000
C)$176,000
D)$200,000
E)$250,000

Question 70

On July 10, 2017, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2017, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation.

A)$2,960
B)$25,000
C)$34,000
D)$70,000
E)None of the above

Question 71

George purchases used seven-year class property at a cost of $200,000 on April 20, 2017. Determine George's cost recovery deduction for 2017 for alternative minimum tax purposes, assuming George does not elect § 179 and does not take additional first-year depreciation.

A)$2,500
B)$10,000
C)$14,280
D)$28,580
E)None of the above

Question 72

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.

A)$16,667
B)$26,667
C)$33,333
D)$100,000
E)None of the above

Question 73

On June 1, 2017, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation. Determine the cost recovery deduction for 2018.

A)$3,160
B)$3,290
C)$3,570
D)$6,720
E)None of the above

Question 74

On May 2, 2017, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine Karen's total cost recovery for 2017. Karen wants to use both §179 and additional first-year depreciation.

A)$7,200
B)$25,000
C)$27,200
D)$31,600
E)None of the above

Question 75

On June 1, 2017, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) James does not take additional first-year depreciation. Determine the cost recovery deduction for 2017.

A)$1,776
B)$1,896
C)$4,800
D)$8,000
E)None of the above

Question 76

Augie purchased one new asset during the year (five-year property) on November 10, 2017, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the total cost recovery deduction with respect to the asset for 2017.

A)$30,500
B)$320,250
C)$510,000
D)$588,750
E)None of the above

Question 77

Bhaskar purchased a new factory building and land on September 10, 2017, for $3,700,000. ($500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2018.

A)$23,328
B)$80,000
C)$82,048
D)$92,500
E)None of the above

Question 78

Pat purchased a used five-year class asset on March 15, 2017, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2017 for earnings and profits purposes.

A)$2,000
B)$3,000
C)$6,000
D)$12,000
E)None of the above

Question 79

On June 1, 2017, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2017 for the patent.

A)$0
B)$1,667
C)$11,667
D)$35,000
E)None of the above

Question 80

Hans purchased a new passenger automobile on August 17, 2017, for $30,000. During the year the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2017.

A)$500
B)$1,000
C)$1,224
D)$1,500
E)None of the above