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

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Question 21

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Carlos purchased an apartment building on November 16, 2018, for $3,000,000. Determine the cost recovery for 2018.

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

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Question 22

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For personal property placed in service in 2018, the § 179 maximum deduction is limited to $1,000,000.

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Question 23

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Which of the following is not a characteristic of MACRS for property other than real estate?

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?

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.

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

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.

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?

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?

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

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

Discuss the reason for the inclusion amount with respect to leased automobiles.

On January 15, 2018, 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 2018 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2018.

All personal property placed in service in 2018 and used in a trade or business qualifies for additional first-year depreciation.

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

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

Rustin bought 7-year class property on May 15, 2018, for $1,228,000. Rustin elects § 179 and straight-line cost recovery, but not additional first-year depreciation.. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum cost recovery deduction Rustin can claim for 2018.

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

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight-line depreciation to slow down the cost recovery.