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

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

Under MACRS, the double-declining balance method is used for property other than real estate with a recovery period of 15 or 20 years.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Tom purchased and placed in service used office furniture on January 3, 2018, for $40,000. Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Tom's income tax returns. On January 10, 2023, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.

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

Antiques may be eligible for cost recovery if they are used in a trade or business.

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2018 for $900,000. What is the maximum cost recovery deduction it may take for 2018?

The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.

The amortization period for $58,000 of startup expenses is 180 months.

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

Orange Corporation begins business on April 2, 2018. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2018.

When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being allocated to goodwill and covenants not to compete, rather than depreciable assets.

On January 15, 2018, Dillon 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. Dillon incurred expenses during 2018 of $500,000. The percentage depletion rate is 22%. Determine Dillon's depletion deduction for 2018.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.

On May 30, 2017, Jane purchased a factory building to use for her business. In August 2018, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2018.

On March 3, 2018, Sally purchased and placed in service a building costing $12,000,000. The building has 10 floors. The bottom three floors are rented out to businesses. The top seven floors are residential apartments. The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000. Determine Sally's cost recovery for the building in 2018.

Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.

In 2017, Gail had a § 179 deduction carryover of $30,000. In 2018, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2018 is $140,000. Determine Gail's § 179 deduction for 2018.

Which of the following depreciation conventions are not used under MACRS?