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

If an automobile is placed in service in 2019, the limitation for cost recovery in 2021 will be based on the cost recovery limits for the year 2019.

Under MACRS, equipment falling in the 7-year MACRS class will be cost recovered over seven tax years.

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?

On March 1, 2019, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2019, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

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

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.

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.

On June 1, 2019, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) James does not take additional first-year depreciation. Determine the cost recovery deduction for 2019.

Cora purchased a hotel building on May 17, 2019, for $3,000,000. Determine the cost recovery deduction for 2020.

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.

For personal property placed in service in 2019, the § 179 maximum deduction is $1,020,000.

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

Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape's cost recovery would begin:

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

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.

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.

Property used for the production of income is not eligible for § 179 expensing.

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

A used $35,000 automobile that is used 100% for business is placed in service in 2019. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

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