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

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Question 41

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If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of the property will be allowed 1.5 months of cost recovery.

A) True
B) False

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Question 42

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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.

A) $24,000.
B) $25,716.
C) $102,000.
D) $132,858.
E) None of the above.

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

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Question 43

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Intangible drilling costs may be expensed rather than capitalized and written off through depletion.

All personal property placed in service in 2012 and used in a trade or business qualifies for additional first-year depreciation.

Hazel purchased a new business asset (five-year asset) on September 30, 2012, at a cost of $100,000. On October 4, 2012, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2012. The only election with respect to the asset was not to take § 179. On August 20, 2013, Hazel sold the asset. Determine the cost recovery for 2013 for the asset.

In 2012, Marci is considering starting a new business. Marci had the following costs associated with this venture: Marci started the new business on October 1, 2012. Determine the deduction for Marci's startup costs for 2012.

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

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?

Land improvements are generally not eligible for cost recovery.

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

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.

MACRS depreciation is used to compute earnings and profits.

On May 30, 2012, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2012. In August 2012, Jane paid $300,000 for qualified leasehold improvements to the building. Jane takes additional first-year depreciation. Determine Jane's total deduction with respect to the leasehold improvements for 2012.

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

On June 1, 2012, 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 is $241, determine Norm's inclusion amount.

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.

In 2011, Gail had a § 179 deduction carryover of $25,000.In 2012, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2012 is $142,000.Determine Gail's § 179 deduction for 2012.

The § 179 deduction can exceed $139,000 in 2012 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

Bhaskar purchased a new factory building on September 2, 2012, for $2,000,000.He elected the alternative depreciation system (ADS) .Determine the cost recovery deduction for 2013.

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.