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

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Question 41

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

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Question 42

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Percentage depletion enables the taxpayer to recover more than the cost of an asset.

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Question 43

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Which of the following assets would be subject to cost recovery?

On February 20,2012,Susan paid $200,000 for a qualified leasehold improvement to an office building that she is going to lease to John.The lease will begin on June 1,2012,and terminate on May 31,2022.At the termination of the lease,the improvement will be worthless.Susan did not elect to treat the leasehold improvement property as § 179 property.She does not take additional first-year depreciation.Determine Susan's deductible loss as a result of the termination of the lease.

For personal property placed in service in 2012,the § 179 maximum deduction is limited to $139,000.

Hans purchased a new passenger automobile on August 17,2012,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 2012.

On January 15,2012,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 2012 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2012.

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?

The cost recovery period for new farm equipment placed in service during 2012 is seven years.

On June 1,2012,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 2013.

On April 15,2012,Sam placed in service a storage facility (a single-purpose agricultural structure)costing $80,000.Sam also purchased and planted fruit trees costing $40,000.Sam does not elect to expense any of the acquisitions under § 179.Sam elected not to take additional first-year depreciation.Determine Sam's cost recovery from these two items for 2013.

Doug purchased a new factory building on January 15,1988,for $400,000.On March 1,2012,the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method.

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

In 2013, Marci is considering starting a new business. Marci had the following costs associated with this venture:

Audra acquires the following new five-year class property in 2012: Audra elects § 179 for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra takes additional first-year depreciation.Determine her total cost recovery deduction (including the § 179 deduction)for the year.

On March 1,2012,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2012,she uses her car 40% for business and 60% for personal activities.Assuming the dollar amount from the IRS table is $110,determine Lana's deduction for the lease payments.

On June 1,2012,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 take additional first-year depreciation.Determine the cost recovery deduction for 2012.

Tan Company acquires a new machine (ten-year property) on January 15,2012,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2012,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election.Tan takes additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2012.

Sid bought a new $410,000 seven-year class asset on August 2,2012.On December 2,2012,he purchased $160,000 of used five-year class assets.Sid does take additional first-year depreciation if available.If Sid elects § 179,what is the maximum write-off for these purchases for 2012?

Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.