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Exam 10: Property Acquisition and Cost Recovery

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Question 21

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Real property is always depreciated using the straight-line method.

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Question 22

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Boxer LLC has acquired various types of assets recently used 100% in its trade or business. Below is a list of assets acquired during 2015 and 2016: Boxer did not elect §179 expense and elected out of bonus depreciation in 2015, but would like to elect §179 expense for 2016 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2016, rounded to the nearest whole number (ignore bonus depreciation for 2016). If necessary, use the 2015 luxury automobile limitation amount for 2016 and assume that the 2015 §179 limits are identical to 2016.

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$234,787
Explanation: §179 allows expens...

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Question 23

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An example of an asset that is both personal-use and personal property is:

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion expense for the current year?

Cost depletion is available to all natural resource producers.

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10^th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10^th year, calculate Simmons' maximum depreciation in the 10^th year:

Taxpayers use the half-year convention for all assets.

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16^th with a basis of $5,000 and furniture (7-year property) on September 9^th with a basis of $20,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the year?

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent of the time during the first year. During the second year, Billie Bob used the computer 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter) :

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation expense during the current year.

Tax depreciation is currently calculated under what system?

Which depreciation convention is the general rule for tangible personal property?

Lenter LLC placed in service on April 29, 2016 machinery and equipment (7-year property) with a basis of $600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing) . Assume that the 2015 §179 limits are identical to 2016:

Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $500,000. Of the amount, $325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization expense for the current year, rounded to the nearest whole number?

How is the recovery period of an asset determined?

Alexandra purchased a $35,000 automobile during 2016. The business use was 70 percent. What is the allowable depreciation for the current year? (ignore any possible bonus depreciation)

Tax cost recovery methods do not include: