Exam 10: Depreciation, cost Recovery, amortization, and Depletion

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

Intangible drilling and development costs (IDCs) may be deducted as an expense or may be capitalized.

In July of 2017,Pat acquired a new automobile for $28,000 and used the automobile 80% for business.In 2018 his business use of the auto was 70%.Pat's depreciation deduction for 2018 will be

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller.Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view?

On November 3rd of this year,Kerry acquired and placed into service 7-year business equipment costing $80,000.In addition,on May 5th of this year,Kerry had also placed in business use 5-year recovery property costing $15,000.Kerry did not elect Sec.179 immediate expensing,and the assets are not eligible for bonus depreciation.No other assets were purchased during the year.The depreciation for this year is

Off-the-shelf computer software that is purchased for use in the taxpayer's trade or business is amortized over 36 months,or it can be immediately expensed under a Sec.179 election.

Bert,a self-employed attorney,is considering either purchasing or leasing a $50,000 automobile for use in his business.What are the issues he should consider in making his decision?

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

On May 1,2012,Empire Properties Corp.,a calendar-year taxpayer,purchased an office building for $1,000,000,of which $400,000 was allocable to the land.The corporation sold the property this year on September 23,2017. a.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2012? b.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2017?

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.

Greta,a calendar-year taxpayer,acquires 5-year tangible personal property in 2017 and places the property in service on the following schedule: Greta elects to expense the maximum under Sec.179,and selects the property placed into service on November 8.The property is not eligible for bonus depreciation.Her business's taxable income before Sec.179 is $790,000.What is the total cost recovery deduction (depreciation and Sec.179) for 2017?

In calculating depletion of natural resources each period,

On October 2,2017,Dave acquired and placed into service 5-year business equipment costing $70,000.No other acquisitions were made during the year.Dave does not use Sec.179 expensing,and the property does not qualify for bonus depreciation.The depreciation for this year,using the most accelerated method possible,is

Because Jim and his family enjoy camping,he bought a pickup truck last year for personal use.The truck cost $40,000.Jim is starting a landscaping business this year and will now be using the truck in the business full-time.Based on online searches,similar trucks are selling for $32,000.When determining his business income,Jim will be able to calculate depreciation on the truck,using the $40,000 cost as basis.

Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.

Depreciable property includes business,investment,and personal-use assets.

Sophie owns an unincorporated manufacturing business.In 2017,she purchases and places in service $2,037,000 of qualifying five-year equipment for use in her business.The equipment does not qualify for bonus depreciation.Her taxable income from the business before any Sec.179 deduction is $450,000.Sophie elects to expense the maximum under Sec.179.What is Sophie's maximum total cost recovery deduction for 2017?

In accounting for research and experimental expenditures,all of the following alternatives are available with the exception of

On January 3,2014,John acquired and placed into service business tools costing $10,000.The tools have a 3-year class life.No other assets were purchased during that year.The depreciation in 2017 for those tools is (Sec.179 and bonus depreciation were not applied)

If the business use of listed property decreases to 50% or less of the total usage,the property is subject to depreciation recapture.