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

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

If an automobile is placed in service in 2012, the limitation for cost recovery in 2014 will be based on the cost recovery limits for the year 2012.

Howard's business is raising and harvesting peaches.On March 10, 2012, Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2012.

Hans purchased a new passenger automobile on August 17, 2012, for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2012.

Orange Corporation begins business on April 2, 2012.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2012.

In a farming business, if the uniform capitalization rules are not used, cost is recovered using the ADS straight-line method.

Property used for the production of income is not eligible for § 179 expensing.

The amortization period in 2012 for $4,000 of startup expenses if no election is made is 180 months.

Joe purchased a new five-year class asset on June 1, 2012.The asset is listed property (not an automobile).It was used 55% for business and 45% for the production of income.The asset cost $1,000,000.Joe made the § 179 election.Joe's taxable income would not create a limitation for purposes of the § 179 deduction. Joe does not take additional first-year depreciation.Determine Joe's total cost recovery (including the § 179 deduction) for the year.

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

The basis of an asset on which $139,000 has been expensed under § 179 will be reduced by $139,000, even if $139,000 cannot be expensed in the current year because of the taxable income limitation.

Hazel purchased a new business asset (five-year asset) on September 30, 2012, at a cost of $100,000. On October 4, 2012, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2012. The only election with respect to the asset was not to take § 179. On August 20, 2013, Hazel sold the asset. Determine the cost recovery for 2013 for the asset.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

In a farming business, MACRS straight-line cost recovery is required for all fruit bearing trees.

Jim acquires a new seven-year class asset on September 20, 2012, for $80,000. He placed the asset in service on October 5, 2012.He does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. He takes additional first-year depreciation.He sells the asset on August 25, 2013.This is the only asset he acquires in 2012. Determine Jim's cost recovery in 2012 and 2013.

Carlos purchased an apartment building on November 16, 2012, for $3,000,000.Determine the cost recovery for 2012.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

On April 5, 2012, Orange Corporation purchased, and placed in service, seven-year class assets costing $500,000 and five-year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation. Assume taxable income is not a limitation. Determine Orange Corporation's cost recovery with respect to the assets for 2012.

Land improvements are generally not eligible for cost recovery.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.