Exam 8: Depreciation and Sale of Business Property

Perry develops a successful advertising business that he subsequently sells to his competitor, Carl, for $108,000. Perry retires in the same town where he has always lived and done business. Carl insists that Perry sign a covenant not to compete. The advertising business has no tangible assets; Carl receives only the name of the business, the client lists and whatever going-concern value there is. How should Carl treat the $108,000 cost of the advertising business he purchased?

If a taxpayer purchases land worth $200,000 with an office building valued at $100,000 on it, how are the two depreciated for tax purposes? Land: Office building:

An asset is placed in service on May 15, 2019 and has a depreciable basis of $40,000. The asset is in the 7-year recovery class and the half-year convention applies. What is the maximum depreciation deduction that may be claimed for 2019, excluding the election to expense and bonus depreciation?

If land declines in value, it may be depreciated for tax purposes.

On June 1, 2019, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business. The auto, with a cost basis of $22,000, has a 5-year recovery period.. How much depreciation should be taken for 2019, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

A taxpayer places a $50,000 5-year recovery period asset in service in 2019. This is the only asset placed in service in 2019. Assuming half-year convention, no special elections (for example, election to expense), what is the amount of total cost recovery deduction?

Jenny constructed a building for use as a residential rental property. The cost of the building was $82,488, and it was placed in service on August 1, 1997. The building has a 27.5-year MACRS life. What is the amount of depreciation on the building for 2019 for tax purposes?

Which of the following statements is correct with respect to the deferral provisions of the tax law?

During the current year, Ethel exchanges a business land for different business land in a like-kind exchange. Ethel's adjusted basis in the land given up is $7,000, and she receives a land worth $13,000 plus $3,000 cash. a.Calculate the amount of gain realized by Ethel on the exchange. b.Calculate the amount of the gain that must be recognized by Ethel on the transaction. c.Calculate Ethel's basis in the new land.

In applying the statutory depreciation percentages from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

Depreciation is the process of allocating the cost of assets to expense over a period of years.

Acquired goodwill is considered to be a Section 197 asset amortized over 15 years for tax purposes.

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year or mid-quarter convention.

The office building Donna owned and used for her desk-top publishing business was destroyed by a hurricane. Although the basis of the building was $80,000, Donna carried replacement cost insurance and received $160,000 from the insurance company after it was determined that the building was a complete loss. It cost her $152,000 to rebuild the store in the current year. a. Calculate Donna's recognized gain, assuming an election under the $\quad$$\quad$ $__ involuntary conversion provision is made. b. Calculate Donna's basis in the replacement building. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $__

Residential real estate is currently assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

Calculate the following amounts: a. The first year of depreciation on a residential rental building costing $100,000, purchased on November 30. b. The first year of depreciation on an auto used 100 percent in business, costing $30,000, purchased in May 2019. (No Section 179 or bonus depreciation). c. The second year of depreciation on a computer used exclusively for business, costing $7,000, purchased May 2018. d. The third year of depreciation on business furniture costing $1,000, purchased in July 2017, using the half-year convention and accelerated depreciation.

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Which of the following assets is not a Section 1231 asset?

Joseph exchanged land (tax basis of $34,000), that he had held for 4 years as an investment, for similar land valued at $42,000 which was owned by Adrian. In connection with this transaction, Adrian assumed Joseph's $11,000 mortgage. As a result of this transaction Joseph should report a long-term capital gain of:

Perry acquired raw land as an investment 16 years ago. The land cost $60,000. In the current year, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000. If Perry elects to recognize the entire gain in the year of sale, what is his recognized gain in the current year?