Exam 2: Property Acquisition and Cost Recovery

Used property is eligible for bonus depreciation.

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Which of the following assets is not eligible for bonus depreciation?

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15^th and the purchase price was $75,000. If the copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

Tax cost recovery methods include depreciation, amortization, and depletion.

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it, reporting gross receipts of $1.8 million, $2.5 million, and $2 million for Years 1 through 3, respectively. During Years 1 through 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000, and $100,000, respectively. In Years 1 through 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 15 percent?

Anne LLC purchased computer equipment (five-year property) on August 29 for $50,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Yasmin purchased two assets during the current year. On May 26 ^th Yasmin placed in service computer equipment (five-year property) with a basis of $15,000 and on December 9 ^th placed in service machinery (seven-year property) with a basis of $15,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

Roth LLC purchased only one asset during the current year. On August 1^st Roth placed in service office equipment (seven-year property) with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

Assume that Yuri acquires a competitor's assets on May 1 ^st. The purchase price was $500,000. Of that amount, $325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization deduction for the current year? (Round final answer to the nearest whole number.)

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 estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion deduction for the current year?

An office desk is an example of:

Limits are placed on the depreciation of luxury automobiles.

Assume that Brittany acquires a competitor's assets on September 30 ^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement). Given that the noncompete agreement expires on September 30 ^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year).On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Which of the following is not usually included in an asset's tax basis?

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather thanby the amount of the allowable depreciation.