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

Alice purchased office furniture on September 20, 2012, for $100,000.On October 10, she purchased business computers for $80,000.Alice did not elect to expense any of the assets under § 179, nor did she elect straight-line cost recovery. She did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2012.

James purchased a new business asset (three-year personalty) on July 23, 2012, at a cost of $40,000.James takes additional first-year depreciation Determine the cost recovery deduction for 2012.

Cora purchased a hotel building on May 17, 2012, for $3,000,000.Determine the cost recovery deduction for 2013.

On February 20, 2012, Susan paid $200,000 for a qualified leasehold improvement to an office building that she is going to lease to John.The lease will begin on June 1, 2012, and terminate on May 31, 2022.At the termination of the lease, the improvement will be worthless.Susan did not elect to treat the leasehold improvement property as § 179 property.She does not take additional first-year depreciation. Determine Susan's deductible loss as a result of the termination of the lease.

For real property, the ADS convention is the mid-month convention.

Motel buildings are classified as residential rental real estate.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used for the production of income is $25,000.

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

Tom acquired a used five-year class asset on November 5, 2012 for $20,000. This was the only asset Tom acquired in 2012. He placed the asset in service on January 20, 2013. However, because the asset was purchased in 2012, Tom deducted regular MACRS cost recovery on the asset for the year 2012.He did not elect to expense any of the asset under § 179. In 2013, Tom purchased no assets and because he had no taxable income, he did not deduct any cost recovery. In 2014, Tom sold the five-year asset on September 25th. Determine the basis of the five-year asset at the time of the sale.

Goodwill associated with the acquisition of a business cannot be amortized.

On June 1 of the current year, Tab converted a machine from personal use to rental property.At the time of the conversion, the machine was worth $90,000.Five years ago Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

If a used $15,000 automobile used 100% for business in the first year (2012) fails the 50% business usage test in the second year, no cost recovery will be recaptured.

Polly purchased a new hotel on July 20, 2012, for $6,000,000.On January 20, 2019, the building was sold.Determine the cost recovery deduction for the year of the sale.

On May 15, 2012, Brent purchased new farm equipment for $120,000.Brent used the equipment in connection with his farming business. Brent does not elect to expense assets under § 179. Brent does not take additional first-year depreciation.Determine the cost recovery deduction for 2012.

Augie purchased one new asset during the year (five-year property) on November 10, 2012, at a cost of $450,000. She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $310,000.She takes additional first-year depreciation. Determine the total cost recovery deduction with respect to the asset for 2012.

On July 17, 2012, Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2013, he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2013.

On January 15, 2012, Vern purchased the rights to a mineral interest for $3,500,000.At that time it was estimated that the recoverable units would be 500,000.During the year, 40,000 units were mined and 25,000 units were sold for $800,000.Vern incurred expenses during 2012 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2012.

The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 20 years.

A taxpayer may elect to use the alternative depreciation system (ADS) on property used predominantly outside the United States.

On July 15, 2012, Mavis paid $275,000 for exterior leasehold improvements on a commercial building she was leasing. Determine the total cost recovery from the improvements in 2012. Mavis elected not to take additional first-year depreciation.