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

On June 1, 2019, Red Corporation purchased an existing business.With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2019 for the patent.

If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.

Alice purchased office furniture on September 20, 2018, for $100,000.On October 10, 2018, she purchased business computers for $80,000.Alice placed all of the assets in service on January 15, 2019.She did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2019.

The factor for determining the cost recovery for eligible real estate under MACRS in the year of disposition is taken from the month of the disposition.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Assets that do not have a determinable useful life are not eligible for cost recovery under MACRS.

Lindsey purchased a uranium interest for $10,000,000 on January 3, 2019, when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2019 and 7,000 units were sold in 2019.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine her depletion deduction for 2019.

Pat purchased a used five-year class asset on March 15, 2019, for $60,000.He did not elect § 179 expensing. Determine the cost recovery deduction for 2019 for earnings and profits purposes.

On June 1, 2019, Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

Motel buildings have a cost recovery period of 27.5 years.

On July 15, 2019, Mavis paid $275,000 for improvements on a commercial building she owns.Determine the maximum total cost recovery from the improvements in 2019.

A major objective of MACRS is to:

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

On July 10, 2019, Ariff places in service a new SUV that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2019, assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation.

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

A taxpayer must use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.

In 2018, Gail had a § 179 deduction carryover of $30,000.In 2019, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2019 is $140,000.Determine Gail's § 179 deduction for 2019.

Nora purchased a new automobile on July 20, 2018, for $29,000.The car was used 60% for business and 40% for personal use.In 2019, the car was used 30% for business and 70% for personal use.Nora elects not to take additional first-year depreciation.Determine the cost recovery recapture and the cost recovery deduction for 2019.

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2019 for $900,000.What is the maximum cost recovery deduction it may take for 2019?