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

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

On April 5, 2019, Orange Corporation purchased and placed in service 7-year class assets costing $1,050,000 and 5- year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation. Assume taxable income is not a limitation. Determine Orange's maximum cost recovery with respect to the assets for 2019.

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

Norm purchases a new SUV on October 12, 2019, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2019. Compute the maximum deduction with respect to the SUV for 2019. Norm does not take additional first-year depreciation.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange may amortize.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

For real property, the ADS convention is the mid-month convention.

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.

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.

Land costs generally are amortized rather than being cost recovered under MACRS.

Jenna acquires a new seven-year class asset on September 20, 2019, for $80,000. She placed the asset in service on October 5, 2019. She does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. She takes additional first-year depreciation. She sells the asset on August 25, 2020. This is the only asset she acquires in2019. Determine Jenna's cost recovery in 2019 and 2020.

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

Sid bought a new $1,320,000 seven-year class asset on August 2, 2019. On December 2, 2019, he purchased $800,000 of used five-year class assets. If Sid elects § 179 and does not take additional first-year depreciation, what is the maximum cost recovery deduction for these purchases for 2019?