Exam 8: Depreciation,cost Recovery,amortization,and Depletion

On February 21,2010,Joe purchased new farm equipment for $500,000.Joe has made an election to not have the uniform capitalization rules apply to his farming business.If Congress reenacts additional first-year depreciation for 2010,he elects not to take additional first-year depreciation.If Joe elects § 179,what is the maximum write-off for this purchase for 2010?

The cost of a covenant not to complete for five years incurred in connection with the acquisition of a business is amortized over 15 years.

Pat purchased a used five-year class asset on March 15,2010,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2010 for earnings and profits purposes.

In 2009,Gail had a § 179 deduction carryover of $15,000.In 2010,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2010 is $127,000.Determine Gail's § 179 deduction for 2010.

The cost recovery period for new farm equipment placed in service during 2010 is seven years.

On July 10,2010,Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2010,assuming Ariff's § 179 business income is $110,000.If Congress reenacts additional first-year depreciation for 2010,Ariff elects not to take additional first-year depreciation.

On May 2,2010,Karen places in service a new sports utility vehicle that cost $70,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 40% for business and 60% for personal use.Determine the cost recovery deduction for 2010.

When lessor owned leasehold improvements are abandoned because of the termination of the lease,a loss can be taken for the unrecovered basis.

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 February of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

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 $70,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on all property.

On March 1,2010,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $900 per month.During 2010,she uses her car 20% for business and 80% for personal activities.Assuming the dollar amount from the IRS table is $233,determine Lana's deduction for the lease payments.

The inclusion amount for a leased automobile is not adjusted by a business usage percentage.

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

Nora purchased a new automobile on July 20,2010,for $29,000.The car was used 60% for business and 40% for personal use.In 2011,the car was used 30% for business and 70% for personal use.If Congress reenacts additional first-year depreciation for 2010,Nora elects not to take additional first-year depreciation.Determine the cost recovery recapture and the cost recovery deduction for 2011.

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 sold.

The statutory dollar cost recovery limits under § 280F for passenger automobiles do not apply if mid-quarter cost recovery is used.

Alice purchased office furniture on September 20,2010,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.If Congress reenacts additional first-year depreciation for 2010,Alice does elect not to take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2010.

Jim acquires a new seven-year class asset on September 20,2010,for $60,000.He placed the asset in service on October 5,2010.He does not elect to expense any of the asset under § 179 or elect straight-line cost recovery.If Congress reenacts additional first-year depreciation for 2010,he elects not to take additional first-year depreciation.He sells the asset on August 25,2011.This is the only asset he acquires in 2010.Determine Jim's cost recovery in 2010 and 2011.

Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.