Exam 7: Property Acquisitions and Cost Recovery Deductions

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: February 18 Warehouse Building \ 2,450,000 June 2 Automobile 30,000 August 18 Computer Equipment 220,000 September 20 Machinery 1,050,000 December 15 Office Equipment 885,000 All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019. What was Sanjuro Corporation's maximum total cost recovery deduction for 2019?

Section 179 expenses exceeding the annual cost limitation may be carried forward for five years only.

On November 7, 2019, Wilson Corporation acquires 7-year property for $25,000.This is the only property acquired this year and neither Section 179 expensing nor bonus depreciation were claimed.What is Wilson's total depreciation deduction for 2019?

Automobiles are subject to specific limitations on the amount of annual depreciation deductions.

On November 7, 2019, Wilson Corporation, a calendar-year taxpayer, acquires 7-year property for $2,650,000.This is the only property acquired this year.Section 179 expensing is elected, without application of bonus depreciation.What is the maximum deduction allowable under Section 179 for Wilson for 2019?

The lease inclusion amount:

Gribble Corporation acquires the Dibble Corporation for $7,200,000.On appraisal, the assets of Dibble Corporation have a fair market value of $6,800,000.The excess of the purchase price over the fair market value of the assets:

Allen Corporation acquired 5-year property costing $150,000 on September 10, 2019.This is the only property acquired this year and Allen elects to expense the maximum amount under Section 179.Allen's income before deducting depreciation is $15,000.What is the maximum amount that Allen can deduct in 2019 for Section 179 expensing?

Joan gives an asset valued at $12,000 with a basis of $10,000 to Mary; Joan dies six-months later leaving an asset valued at $10,000 with a basis of $12,000 to Larry.What are Mary's and Larry's bases in these assets if they are then sold for their fair market value?

All of the following are acceptable conventions for MACRS property except:

During the year, Garbin Corporation (a calendar-year corporation that manufactures furniture) purchased the following assets: February 15 Tools \4 0,000 March 3 Machines 50,000 October 6 Office Building 110,000 In computing depreciation of these assets, which of the following averaging conventions will be used?

The after-tax cost of an asset

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2019.It purchased and placed in service the following assets during 2019: March 4 New Office Building \ 850,000 March 15 New Computer Equipment 45,000 March 25 New Office Furniture \ 25,000 August 20 Used Machinery \ 120,000 December 15 New Automobile \ 30.000 All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2019, what would its maximum cost recovery deduction be for 2019?

Section 179 expensing does not apply to used property.

Gonzalez Corporation is a calendar-year taxpayer.What is the MACRS depreciation percentage deduction for the first year for a 7-year asset acquired February 15 under the mid-quarter convention.

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: February 18 Warehouse Building \ 2,450,000 June 2 Automobile 30,000 August 18 Computer Equipment 220,000 September 20 Machinery 1,050,000 December 15 Office Equipment 885,000 All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019. What would be Sanjuro Corporation's cost recovery deduction for the computer equipment for 2020?

In May 2018, Stephen acquired a used automobile for $12,000 that he used 75% for business.Neither Section 179 election nor bonus depreciation was claimed.In 2019, Stephen's business use of the automobile decreases to 45%.As a result of this change in business use:

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: February 18 Warehouse Building \ 2,450,000 June 2 Automobile 30,000 August 18 Computer Equipment 220,000 September 20 Machinery 1,050,000 December 15 Office Equipment 885,000 All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019. What would be Sanjuro Corporation's cost recovery deduction for the warehouse for 2020 if it is sold in November of 2020?

MACRS depreciation for 5-year assets is based on:

Gregory Corporation, a calendar-year corporation, purchased an office building in March of year 1.In September of year 17, it sold the building.What fraction must be applied to the MACRS percentage to determine the year 17 depreciation?