Exam 8: Depreciation, Cost Recovery, Amortization, and Depletion

Audra acquires the following new five-year class property in 2012: Audra elects § 179 for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction. Audra takes additional first-year depreciation.Determine her total cost recovery deduction (including the § 179 deduction) for the year.

On March 1, 2012, Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2012, she uses her car 40% for business and 60% for personal activities.Assuming the dollar amount from the IRS table is $110, determine Lana's deduction for the lease payments.

The only asset Bill purchased during 2012 was a new seven-year class asset.The asset, which was listed property, was acquired on June 17 at a cost of $50,000.The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2012.

On May 30, 2012, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2012. In August 2012, Jane paid $300,000 for qualified leasehold improvements to the building. Jane takes additional first-year depreciation. Determine Jane's total deduction with respect to the leasehold improvements for 2012.

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

Rod paid $950,000 for a new warehouse on April 14, 2012.He sold the warehouse on September 29, 2017.Determine the cost recovery deduction for 2012 and 2017.

On June 1, 2012, Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation.Determine the cost recovery deduction for 2013.

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2012.

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are as follows: If Tara sells the machine after three years for $15,000, how much gain should she recognize?

Bhaskar purchased a new factory building on September 2, 2012, for $2,000,000.He elected the alternative depreciation system (ADS).Determine the cost recovery deduction for 2013.

All eligible real estate under MACRS is permitted one-half month of cost recovery in the month of disposition.

Discuss the difference between the half-year convention and the mid-quarter convention.

All personal property placed in service in 2012 and used in a trade or business qualifies for additional first-year depreciation.

Norm purchases a new sports utility vehicle (SUV) on October 12, 2012, for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2012.Compute the maximum deduction with respect to the SUV for 2012. Norm does take additional first-year depreciation.

The costs of qualified leasehold improvements qualify for additional first-year depreciation.

Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.

Once the more-than-50% business usage test is passed for listed property, it does matter if the business usage for the property drops to 50% or less during the recovery period.

Antiques may be eligible for cost recovery if they are used in a trade or business.

Mary purchased a new five-year class asset on March 7, 2012.The asset was listed property (not an automobile).It was used 60% for business and the rest of the time for personal use.The asset cost $600,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $400,000.Mary does take additional first-year depreciation. Determine the total deductions with respect to the asset for 2012.