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

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

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

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

For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

On July 10, 2018, 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 2018, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation.

On January 15, 2018, 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 2018 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2018.

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

For personal property placed in service in 2018, the § 179 maximum deduction is limited to $1,000,000.

Discuss the difference between the half-year convention and the mid-quarter convention.

Bonnie purchased a new business asset five-year property) on March 10, 2018, at a cost of $30,000. She also purchased a new business asset seven-year property) on November 20, 2018, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2018 for these assets.

Motel buildings have a cost recovery period of 27.5 years.

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2018. Determine the cost recovery deduction for the year of the sale.

Hans purchased a new passenger automobile on August 17, 2018, for $30,000. During the year the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2018.

On January 15, 2018, Dillon 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. Dillon incurred expenses during 2018 of $500,000. The percentage depletion rate is 22%. Determine Dillon's depletion deduction for 2018.

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

Under the alternative depreciation system ADS), the half-year convention must be used for personalty.

The cost recovery period for 3-year class property is 4 years.

When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being allocated to goodwill and covenants not to compete, rather than depreciable assets.

All personal property placed in service in 2018 and used in a trade or business qualifies for additional first-year depreciation.