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

On March 3, 2019, Sally purchased and placed in service a building costing $12,000,000.The building has 10 floors. The bottom three floors are rented out to businesses.The top seven floors are residential apartments.The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000.Determine Sally's cost recovery for the building in 2019.

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination.

If more than 40% of the value of property other than real property is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

Property that is classified as personalty may be depreciated.

Which of the following depreciation conventions are not used under MACRS?

On May 2, 2019, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine Karen's total cost recovery for 2019.Karen wants to use both §179 and additional first-year depreciation.

The amortization period for $58,000 of startup expenses is 180 months.

The luxury auto cost recovery limits applies to all automobiles.

Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

The amount of startup expenditures that can be deducted in the year incurred is the greater of the actual amount of such expenses or $5,000.

On January 1, 2019, SymboNet Company completed its acquisition of NetOpen.As part of the acquisition, $2 million was allocated to goodwill.What is SymboNet's amortization deduction related to the goodwill for 2019?

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

Which of the following is not a characteristic of MACRS for property other than real estate?

Discuss the requirements for startup expenditures to be amortized under § 195.

Orange Corporation begins business on April 2, 2019.The corporation reports startup expenditures of $64,000 all incurred last year.Determine the total amount that Orange can elect to deduct in 2019.

White Company acquires a new machine (seven-year property) on January 10, 2019, at a cost of $620,000.White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed.No election is made to use the straight-line method.Determine the total deductions in calculating taxable income related to the machine for 2019 assuming White has taxable income of $800,000.

The key date for calculating cost recovery is the date the asset is placed in service.

In 2019, Marci is considering starting a new business.Marci incurs the following costs associated with this venture. Advertising \ 5,000 Travel 10,000 Market surveys 8,000 Professional services 30,000 Interest expense 2,000 Taxes 1,000 Marci started the new business on January 5, 2020.Determine the deduction for her startup costs for 2019.

Martin is a sole proprietor of a sandwich business.On March 4, 2019, he purchased and placed in service new seven-year class assets costing $580,000.Martin's business reports taxable income of $160,000 for the year before any deductions associated with the purchased assets.Martin also received $30,000 of interest income for the year, which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind, determine how Martin should recover the cost of the acquired assets.

Land improvements are generally not eligible for cost recovery.