Exam 9: Property Acquisition and Cost Recovery

Janey purchased machinery on April 8ᵗʰ of the current year.The relevant costs for the year are as follows: machinery for $10,000,$800 shipping,$50 for delivery insurance,$500 for installation,$750 for sales tax,$150 for the annual tune up,and $200 of property taxes (an annual tax on business property).What is Janey's tax basis for the machinery?

Which of the following would be considered an improvement rather than a routine maintenance?

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

-An office building was purchased on December 9ᵗʰ several years ago 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 10ᵗʰ year,the building was sold on March 10ᵗʰ.Calculate the maximum depreciation expense for the real property during the current year,rounded to the nearest whole number.(Use MACRS Table 5)

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

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year,a taxpayer must multiply the appropriate depreciation percentage from the MACRS table percentage by 50 percent to calculate the depreciation expense properly.

(Table 2) IN THE TEXT -Bonnie Jo used two assets during the current year.The first was computer equipment with an original basis of $15,000,currently in the second year of depreciation,and under the half-year convention.This asset was disposed of on October 1st of the current year.The second was furniture with an original basis of $24,000 placed in service during the first quarter,currently in the fourth year of depreciation,and under the mid-quarter convention.What is Bonnie Jo's depreciation expense for the current year? (Round final answer to the nearest whole number)(Use MACRS Table 1 and Table 2)

-Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly.Occasionally,she uses the equipment for personal use.During the first year,Phyllis used the equipment for business use 70 percent of the time; however,during the current (second)year the business use fell to 40 percent.Assume that the equipment is seven-year MACRS property and is under the half-year convention.Assume the ADS recovery period is 10 years.What is the depreciation allowance for the current year? (Use MACRS Table 1)(Round final answer to the nearest whole number.)

IN THE TEXT -Tom Tom LLC purchased a rental house and land during the current year for $150,000.The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land.The property was placed in service on May 22.Calculate Tom Tom's maximum depreciation for this first year.(Use MACRS Table 3)