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

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Question 51

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Rustin bought used 7-year class property on May 15,2012,for $370,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Rustin does not take additional first-year depreciation.Determine the write-off Rustin can take in 2012.

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Question 52

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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.

A) $71,593.
B) $128,610.
C) $204,877.
D) $385,296.
E) None of the above.

F) B) and C)
G) B) and D)

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Question 53

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Polly purchased a new hotel on July 20,2012,for $6,000,000.On January 20,2019,the building was sold.Determine the cost recovery deduction for the year of the sale.

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

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

Rick purchased a uranium interest for $10,000,000 on January 3,2012,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2012 and 7,000 units were sold in 2012.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2012.

On June 1,2012,Gabriella purchased a computer and peripheral equipment (five-year property)for $25,000.She used the assets 40% for business,50% for the production of income,and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

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

Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

If an automobile is placed in service in 2012,the limitation for cost recovery in 2014 will be based on the cost recovery limits for the year 2012.

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

Howard's business is raising and harvesting peaches.On March 10,2012,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.If eligible,Howard takes additional first-year depreciation.Determine the cost recovery deduction for 2012.

On May 15,2012,Brent purchased new farm equipment for $120,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.Brent does not take additional first-year depreciation.Determine the cost recovery deduction for 2012.

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

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used for the production of income is $25,000.

In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.

MACRS depreciation is used to compute earnings and profits.

On March 3,2012,Sally purchased and placed in service a building costing $12,000,000.The building has 10 floors.The bottom three floors are rented out to businesses.The top seven floors are residential apartments.The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000.Determine Sally's cost recovery for the building in 2012.

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

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.