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

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Question 31

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Under the MACRS straight-line election for personalty,only the half-year convention is applicable.

A) True
B) False

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Question 32

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The key date for calculating cost recovery is the date the asset is placed in service.

A) True
B) False

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Question 33

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Rick purchased a uranium interest for $10,000,000 on January 3,2017,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2017 and 7,000 units were sold in 2017.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2017.

Property which is classified as personalty may be depreciated.

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?

MACRS depreciation is used to compute earnings and profits.

A purchased trademark is a § 197 intangible.

Carlos purchased an apartment building on November 16,2017,for $3,000,000.Determine the cost recovery for 2017.

During the past two years,through extensive advertising and improved customer relations,Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year,determine the amount of goodwill Orange Corporation may amortize.

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

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

On July 10,2017,Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2017,assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation.

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

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

The amortization period for $58,000 of startup expenses is 180 months.

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

The only asset Bill purchased during 2017 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2017.

Hazel purchased a new business asset (five-year asset) on September 30,2017,at a cost of $100,000.On October 4,2017,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2017.Hazel did not elect § 179 or additional first-year depreciation.On August 20,2018,Hazel sold the asset.Determine the cost recovery for 2018 for the asset.

Mary purchased a new five-year class asset on March 7,2017.The asset was listed property (not an automobile) .It was used 60% for business and the rest of the time for personal use.The asset cost $900,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $600,000.Mary also takes additional first-year depreciation.Determine the total deductions with respect to the asset for 2017.

Diane purchased a factory building on April 15,1993,for $5,000,000.She sells the factory building on February 2,2017.Determine the cost recovery deduction for the year of the sale.