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

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Question 51

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On June 1, 2012, 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 2012 for the patent.

A) $0.
B) $1,667.
C) $11,667.
D) $35,000.
E) None of the above.

F) C) and D)
G) A) and C)

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Question 52

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Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2012.

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Residential realty is property for which...

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Question 53

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Once the more-than-50% business usage test is passed for listed property, it does matter if the business usage for the property drops to 50% or less during the recovery period.

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

Pat purchased a used five-year class asset on March 15, 2012, for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2012 for earnings and profits purposes.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

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.

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

Antiques may be eligible for cost recovery if they are used in a trade or business.

The costs of qualified leasehold improvements qualify for additional first-year depreciation.

On July 17, 2012, Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2013, he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2013.

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

When lessor owned leasehold improvements are abandoned because of the termination of the lease, a loss can be taken for the unrecovered basis.

On June 1, 2012, Sam purchased new 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. Sam does not take additional first-year depreciation. Determine the cost recovery deduction for 2012.

Polly purchased a new hotel on July 20, 2012, for $6,000,000.On January 20, 2019, the building was sold.Determine the cost recovery deduction for the year of the sale.

The statutory dollar cost recovery limits under § 280F for passenger automobiles still apply if mid-quarter cost recovery is used.

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

Nora purchased a new automobile on July 20, 2012, for $29,000.The car was used 60% for business and 40% for personal use.In 2013, the car was used 30% for business and 70% for personal use. Nora elects not to take additional first-year depreciation. Determine the cost recovery recapture and the cost recovery deduction for 2013.

On May 2, 2012, 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 the cost recovery for 2012.Karen wants to maximize her deductions.

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 as follows: If Tara sells the machine after three years for $15,000, how much gain should she recognize?