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

Land improvements are generally not eligible for cost recovery.

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.

New and used personal property placed in service in 2019 and used in a trade or business qualifies for additional first-year depreciation.

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.

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

On May 30, 2018, Jane purchased a factory building to use for her business. In August 2019, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2019.

Under MACRS, the double-declining balance method is used for property other than real estate with a recovery period of 15 or 20 years.

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize?

Carlos purchased an apartment building on November 16, 2019, for $3,000,000. Determine the cost recovery for 2019.

On June 1, 2019, Gabriella purchased a computer and peripheral equipment (five-year property) for $25,000. She used the assets 40% for business, 50% for the production of income, and 10% for personal use. These are the only assets Gabriella purchased during the current year. Determine her total cost recovery deduction for 2019.

Augie purchased one new asset during the year (five-year property) on November 10, 2019, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the maximum cost recovery deduction available on this asset for 2019.

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.

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.

On June 1, 2018, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation. Determine the cost recovery deduction 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.

On August 20, 2019, May placed in service a building for her business. On November 28, 2019, she paid $80,000 for improvements to the building. What is May's cost recovery deduction for the building improvements in 2019?

On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago, Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2,2019. Determine the cost recovery deduction for the year of the sale.