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

On April 5, 2018, Orange Corporation purchased, and placed in service, seven-year class assets costing $1,030,000 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 maximum cost recovery with respect to the assets for 2018.

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

A used $35,000 automobile that is used 100% for business is placed in service in 2018. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

James purchased a new business asset (three-year personalty) on July 23, 2018, at a cost of $40,000. James takes additional first-year depreciation but does not elect Section 179 expense on the asset. Determine the cost recovery deduction for 2018.

A purchased trademark is a § 197 intangible.

Hazel purchased a new business asset (five-year asset) on September 30, 2018, at a cost of $100,000. On October 4, 2018, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2018. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2019, Hazel sold the asset. Determine the cost recovery for 2019 for the asset.

Jenna acquires a new seven-year class asset on September 20, 2018, for $80,000. She placed the asset in service on October 5, 2018. She does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. She takes additional first-year depreciation. She sells the asset on August 25, 2019. This is the only asset she acquires in 2018. Determine Jenna's cost recovery in 2018 and 2019.

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

The only asset Bill purchased during 2018 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 2018.

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

On June 1, 2018, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2018 for the patent.

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

Pat purchased a used five-year class asset on March 15, 2018, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2018 for earnings and profits purposes.

If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

Hans purchased a new passenger automobile on August 17, 2018, 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 2018.

Norm purchases a new sports utility vehicle (SUV) on October 12, 2018, for $60,000. 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 2018. Compute the maximum deduction with respect to the SUV for 2018. Norm does not take additional first-year depreciation.

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2018. Determine the cost recovery deduction for the year of the sale.

The § 179 deduction can exceed $1,000,000 in 2018 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

White Company acquires a new machine (seven-year property) on January 10, 2018, at a cost of $620,000. White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2018 assuming White has taxable income of $800,000.

Under the MACRS straight-line election for personalty, only the half-year convention is applicable.