Exam 2: Property Acquisition and Cost Recovery

The mid-month convention applies to real property in the year of acquisition and disposition.

Paulman incurred $68,000 of research and experimental expenses and began amortizing them over 60 months during June of Year 1. During May of Year 3, Paulman received a patent based upon the research being amortized. $49,000 of legal expenses for the patent were incurred. The patent is expected to have a remaining useful life of 17 years. 1) What is the basis of the patent? (Round amortization for each year to the nearest whole number.) 2) What is the amortization deduction with respect to the patent during the year it was issued? (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 $10,000 andon December 9^th placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

The MACRS recovery period for automobiles and computers is:

BoxerLLC has acquired various types of assets recently used 100 percent in its trade or business. Below is a list of assets acquired during 2019 and 2020: Boxer did not elect §179 expense and elected out of bonus depreciation in 2019, but would like to take advantage of the §179 expense and bonus depreciation for 2020 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation deduction for 2020. (Use MACRS Table 1, MACRS Table 5, and Exhibit 10-10.) (Round final answer to the nearest whole number.)

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Sequoia purchased the rights to cut timber on several tracts of land over a 15-year period. It paid $517,000 for cutting rights. A timber engineer estimates that 517,000 board feet of timber will be cut. During the current year, Sequoia cut 62,000 board feet of timber, which it sold for $917,000. What is Sequoia's cost depletion deduction for the current year?

Real property is depreciated using the straight-line method.

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Kristine sold two assets on March 20th of the current year. The first was machinery with an original basis of $71,000, currently in the fourth year of depreciation, and depreciated under the half-year convention. The second was furniture with an original basis of $36,000, placed in service during the fourth quarter, currently in the third year of depreciation, and depreciated under the mid-quarter convention. What is Kristine's depreciation deduction for the current year if the depreciation recovery period is seven years? (Use MACRS Table 1 and Table 2 and Exhibit 10-6.) (Round final answer to the nearest whole number.)