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

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Question 41

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The luxury auto cost recovery limits applies to all automobiles.

A) True
B) False

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Question 42

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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.

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B) False

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Question 43

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Under MACRS, the double-declining balance method is used for property other than real estate with a recovery period of 15 or 20 years.

Nora purchased a new automobile on July 20, 2017, for $29,000. The car was used 60% for business and 40% for personal use. In 2018, the car was used 30% for business and 70% for personal use. Nora elects not to take additional first-year depreciation. Determine the cost recovery recapture and the cost recovery deduction for 2018.

Tan Company acquires a new machine ten-year property) on January 15, 2018, at a cost of $200,000. Tan also acquires another new machine seven-year property) on November 5, 2018, 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 2018.

Orange Corporation begins business on April 2, 2018. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2018.

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

Bhaskar purchased a new factory building and land on September 10, 2018, 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 2019.

A purchased trademark is a § 197 intangible.

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar-year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize?

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.

Maple Company purchases new equipment 7-year MACRS property) on January 10, 2018, at a cost of $430,000. Maple also purchases new machines 5-year MACRS property) on July 19, 2018 at a cost of $290,000. Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple's total MACRS deduction for 2018?

On June 1, 2018, 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 2018.

Barry purchased a used business asset seven-year property) on September 30, 2018, 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, 2019. Determine the cost recovery deduction for 2019.

On June 1, 2018, 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 2018 for the patent.

Assets that do not decline in value on a predictable basis are not eligible for cost recovery under MACRS.

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

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

Land is generally amortized, rather than being cost recovered under MACRS.

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?