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

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Question 41

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On June 1,2015,Sam purchased used farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Determine the cost recovery deduction for 2015.

A) $5,000
B) $7,500
C) $10,000
D) $78,750
E) None of the above

F) A) and E)
G) All of the above

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Question 42

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In 2014,Gail had a § 179 deduction carryover of $30,000.In 2015,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2015 is $140,000.Determine Gail's § 179 deduction for 2015.

A) $25,000
B) $115,000
C) $130,000
D) $140,000
E) None of the above

F) A) and D)
G) A) and B)

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Question 43

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Audra acquires the following new five-year class property in 2015: Asset Acquisition Date Cost A January 10 $ 106,000 B July 5 70,000 C November 15 1,950,000 Total $ 2,126,000 Audra elects § 179 treatment for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra claims the full available additional first-year depreciation deduction.Determine her total cost recovery deduction (including the § 179 deduction) for the year.

On April 5,2015,Orange Corporation purchased,and placed in service,seven-year class assets costing $540,000 and five-year class assets costing $140,000.Orange elects to expense the maximum amount under § 179.Orange does not take additional first-year depreciation (if available).Assume taxable income is not a limitation.Determine Orange Corporation's cost recovery with respect to the assets for 2015.

All personal property placed in service in 2015 and used in a trade or business qualifies for additional first-year depreciation.

On June 1,2015,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 (if available) .Determine the cost recovery deduction for 2015.

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000,even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

Motel buildings have a cost recovery period of 27.5 years.

A used $35,000 automobile that is used 100% for business is placed in service in 2015.If the automobile fails the 50% business usage test in the second year,no cost recovery will be recaptured.

On July 15,2015,Mavis paid $275,000 for improvements on a commercial building she owns.Determine the maximum total cost recovery from the improvements in 2015.

The cost recovery method for new farm equipment is 200% declining balance.

Orange Corporation begins business on April 2,2015.The corporation reports startup expenditures of $64,000 all incurred last year.Determine the total amount that Orange can elect to deduct in 2015.

Sid bought a new $1,210,000 seven-year class asset on August 2,2015.On December 2,2015,he purchased $860,000 of used five-year class assets.If Sid elects § 179 and takes additional first-year depreciation,if available,what is the maximum cost recovery deduction for these purchases for 2015?

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

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

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Land improvements are generally not eligible for cost recovery.

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

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. Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000,how much gain should she recognize?