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

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Question 1

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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.

A) True
B) False

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Question 2

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

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The purpose of the inclusion a...

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

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

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.

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.

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?

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.

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.

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.

Martin is a sole proprietor of a sandwich business.On March 4,2017,Martin purchased and placed in service new seven-year class assets costing $570,000.Martin's business reports taxable income for the year,before any deductions associated with the purchased assets,of $160,000.Martin also received $30,000 of interest income for the year,which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind,determine how Martin should recover the cost of the acquired assets.

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.

Discuss the difference between the half-year convention and the mid-quarter convention.

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

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.

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

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

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

In 2017,Marci is considering starting a new business.Marci incurs the following costs associated with this venture. ​ Marci started the new business on January 5,2018.Determine the deduction for Marci's startup costs for 2017.