Exam 2: Property Acquisition and Cost Recovery

Lax LLC purchased only one asset during the current year (a full 12-month tax year). On August 26 Lax placed in service computer equipment (five-year property) with a basis of $32,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Billie Bob purchased a used camera (five-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation deduction during the second year, assuming the sole proprietorship had a loss during the year. (Billie Bob did not place the asset in service in the last quarter.) (Use MACRS Table 1.)

Which of the allowable methods allows the most accelerated depreciation?

Potomac LLC purchased an automobile for $31,200 on August 5, 2020. What is Potomac's depreciation deduction for 2020? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.)

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

An office building was purchased several years agoon December 9th for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10^th year, the building was sold on March 10^th. Calculate the maximum depreciation deduction for the real property during the current year, rounded to the nearest whole number. (Use MACRS Table 5.)

Which is not an allowable method under MACRS?

An example of an asset that is both personal-use and personal property is:

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,464,500 on June 6, 2020. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Wheeler LLC purchased two assets during the current year (a full 12-month tax year). On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $16,500 and on April 20 placed in service furniture (seven-year property) with a basis of $11,900. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

Flax LLC purchased only one asset this year.On January 16 Flax placed in service a computer (five-year property) with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $956,250 for extraction rights. A geologist estimates that Santa Fe will recover 11,250 pounds of turquoise. During the current year, Santa Fe extracted 3,375 pounds of turquoise, which it sold for $608,000. What is Santa Fe's cost depletion deduction for the current year?

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on July 9, 2020, machinery and equipment (seven-year property) with a basis of $2,750,000. Assume that Columbia has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation) for the year. (Use MACRS Table 1.)

Taxpayers use the half-year convention for all assets.

Taxpayers may use historical data to determine the recovery period for tax depreciation.

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.