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

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Question 51

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On April 15,2011,Sam placed in service a storage facility (a single-purpose agricultural structure)costing $80,000.Sam also purchased and planted fruit trees costing $40,000.Sam does not elect to expense any of the acquisitions under § 179.Sam elected not to take additional first-year depreciation.Determine Sam's cost recovery from these two items for 2011.

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Question 52

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

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A purchased trademark is a § 197 intangible.

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

Mary purchased a new five-year class asset on March 7,2011.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 $600,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $400,000.Mary does elect not to take additional first-year depreciation.Determine the total deductions with respect to the asset for 2011.

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

The only asset Bill purchased during 2011 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 2011.

On January 15,2011,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 2011 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2011.

George purchases used seven-year class property at a cost of $200,000 on April 20,2011.Determine George's cost recovery deduction for 2011 for alternative minimum tax purposes,assuming George does not elect § 179 and the maximum cost recovery deduction is taken for regular income tax purposes.

Diane purchased a factory building on November 15,1993,for $5,000,000.She sells the factory building on February 2,2011.Determine the cost recovery deduction for the year of the sale.

If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on 3,5,7,and 10-year property.

If a new car that is used predominantly in business is placed in service in 2011,the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight-line depreciation.

Which of the following assets would be subject to cost recovery?

On May 30,2011,Jane signed a 20-year lease on a factory building to use for her business.The lease begins on June 1,2011.In August 2011,Jane paid $300,000 for qualified leasehold improvements to the building.Jane elected to treat the qualified leasehold improvements as § 179 property.Determine Jane's total deduction with respect to the leasehold improvements for 2011.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used for the production of income is $25,000.

Alice purchased office furniture on September 20,2011,for $100,000.On October 10,she purchased business computers for $80,000.Alice did not elect to expense any of the assets under § 179,nor did she elect straight-line cost recovery.She elects not to take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2011.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

ADS straight-line depreciation is used to compute earnings and profits.

On June 1,2011,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 elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.

Hazel purchased a new business asset (five-year asset) on September 30,2011,at a cost of $100,000.On October 4,2011,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2011.The only election with respect to the asset was not to take additional first-year depreciation.On August 20,2012,Hazel sold the asset.Determine the cost recovery for 2012 for the asset.