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

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

On February 21, 2012, Joe purchased new farm equipment for $600,000. Joe has made an election to not have the uniform capitalization rules apply to his farming business. He does not take additional first-year depreciation.If Joe elects § 179, what is the maximum write-off for this purchase for 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.

Under the MACRS straight-line election for personalty, the mid-quarter convention is applicable.

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.

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

Janet purchased a new car on June 5, 2012, at a cost of $18,000.She used the car 80% for business and 20% for personal use in 2012.She used the automobile 40% for business and 60% for personal use in 2013. Janet takes additional first-year depreciation. Determine Janet's cost recovery recapture for 2013.

Rustin bought used 7-year class property on May 15, 2012, for $370,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Rustin does not take additional first-year depreciation.Determine the write-off Rustin can take in 2012.

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

If startup expenses total $53,000 in 2012, $51,000 is amortized over 180 months.

Taxpayers may elect to use the straight-line method under MACRS for personalty.

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.

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.

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

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.

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.

The concept of depreciation assumes that the asset has a determinable useful life.

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

The basis of cost recovery property must be reduced by the cost recovery allowed.

If a new car that is used predominantly in business is placed in service in 2012, the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight-line depreciation.