Question 1

Greenville Floral places a new tractor (7-year MACRS)into service on January 8,2016.They pay $28,000 for the tractor.This is the only business asset placed into service during this year.Greenville Floral wants to minimize the amount of depreciation deductible in 2016.What is Greenville Floral's cost recovery for 2016?

Accepted Answer

Greenville Floral should use the straight-line depreciation method for the tractor, which has a 7-year MACRS life. Using the table for this depreciation method, we can see that the percentage to be used in the first year is 14.29%. Therefore, the depreciation deduction for 2016 would be $28,000 x 14.29% = $3,999.20. However, since Greenville Floral wants to minimize the amount of depreciation deductible in 2016, they should choose to expense the entire cost of the tractor under Section 179, which allows businesses to deduct the full cost of qualifying assets in the year they are placed into service. For 2016, the maximum Section 179 deduction is $2,000, so this is the best choice for Greenville Floral. The remaining cost of the tractor ($28,000 - $2,000 = $26,000) is depreciated over the remaining 6 years of its MACRS life. Therefore, the cost recovery for 2016 would be $2,000.

Question 2

Jim places a new lift truck (7-year MACRS property)into service on January 16,2017.He pays $30,000 for the truck.This is the only business asset placed into service during this year.Jim does not desire to use the Section 179 election.How much depreciation may Jim deduct for 2017?

Accepted Answer

Under the MACRS 7-year property, the first-year depreciation rate is 14.29%. Therefore, $30,000 x 14.29% = $4,287.

Question 3

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)?
I.The taxpayer desires rapid write off of assets.
II.The taxpayer may be close to being subject to the alternative minimum tax.
III.The taxpayer is experiencing a low income time period.
​

Accepted Answer

The answer of Why might a taxpayer elect to depreciate...

Question 4

During 2017,Williams Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property.What is its 2017 depreciation deduction for purposes of the alternative minimum tax?

Accepted Answer

For the alternative minimum tax (AMT) purposes, the equipment will be depreciated using the straight-line method over the class life of 12 years. The 7-year property belongs to the 5-year class life and is assigned a recovery period of 6 years. The MACRS depreciation formula for year 1 is 14.29% (1/7) multiplied by the cost, which yields $5,716. However, when calculating AMT depreciation, the adjusted basis for each year's depreciation must be reduced by the adjustment amount, which is calculated as the excess of the 150% declining balance depreciation over the straight-line depreciation (in this case $1,020). Therefore, the adjusted basis for year 1 is $38,980 ($40,000 - $1,020), and the AMT depreciation deduction is $2,857 ($38,980 x 7.355% for 2017).

Question 5

Chestnut Furniture Company purchases a delivery van on June 14,2017,at a cost of $30,000.The delivery van has a 5-year MACRS life and an ADS recovery period of 5 years.What is Chestnut's minimum cost recovery deduction on the van in 2017?

Accepted Answer

The correct answer is B because the minimum cost recovery deduction for the van in 2017 is $3,000. This is because the van has a 5-year MACRS life and an ADS recovery period of 5 years. The MACRS depreciation rate for the first year is 20%, so the depreciation deduction for the first year is $30,000 x 20% = $6,000. However, the minimum cost recovery deduction for the first year is $3,000, so the depreciation deduction for the first year is limited to $3,000.

Question 6

Wellington Apartments purchases an apartment building on November 9,2017,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2017 MACRS depreciation deduction?

Accepted Answer

Assuming the apartment building is a residential rental property, it falls under the MACRS 27.5-year depreciation schedule. The cost of the building should be allocated between the land and the building itself, with the land being a non-depreciable asset. Without information about the allocation of costs, we will assume that 80% of the cost is allocated to the building, or $800,000. Using the 27.5-year MACRS depreciation schedule and half-year convention (which assumes the property is placed in service on the mid-point of the year), the depreciation deduction for 2017 would be $4,550.

Question 7

On August 3,2017,Yang purchases office furniture (7-year property)costing $21,000 for use in her business.She does not wish to use the Section 179 election and makes the election to use the straight-line method over the MACRS recovery period.What is Yang's 2017 cost recovery deduction?

Accepted Answer

Under MACRS, 7-year property using the straight-line method has a half-year convention in the first year. The cost recovery deduction is calculated as $21,000 / 7 years * 0.5 (half-year convention) = $1,500.

Question 8

On July 17,2017,Elise purchases office furniture (7-year property)costing $50,000 for use in her business.She wishes to use the Section 179 election.Her taxable income before the depreciation deduction is $25,000.What is the maximum total cost recovery deduction Elise can take for the current year?

Accepted Answer

The answer of On July 17,2017,Elise purchases office furniture (7-year...

Question 9

Lindale Rentals places an apartment building in service on November 22,2017.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2017 depreciation deduction on the property?

Accepted Answer

The answer of Lindale Rentals places an apartment building in...

Question 10

Daniel purchases 5-year class listed property (a computer)on March 2,2017,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2017 depreciation deduction.What is Daniel 's 2017 depreciation deduction?

Accepted Answer

The answer of Daniel purchases 5-year class listed property (a...

Question 11

Wilson Corporation purchases a factory building on September 29,2017,for $4,000,000 (exclusive of the amount allocated to the land).It elects the alternative depreciation system (ADS).What is the 2017 depreciation deduction?

Accepted Answer

The answer of Wilson Corporation purchases a factory building on...

Question 12

Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2017 MACRS depreciation deduction?

Accepted Answer

Assuming a recovery period of 39 years for nonresidential property and using the MACRS depreciation method with half-year convention, the depreciation deduction for 2017 would be $25,640.

Question 13

Tucker Estates places an apartment building in service on November 22,2013.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2017.What is Tucker Estates' 2017 depreciation deduction on the property?

Accepted Answer

The property was sold on March 5, 2017, so Tucker Estates is entitled to a depreciation deduction for the period from January 1, 2017, to March 5, 2017. This is a period of 63 days. The annual depreciation deduction is $3,300,000 / 39 = $84,615. The depreciation deduction for the period from January 1, 2017, to March 5, 2017, is $84,615 * 63 / 365 = $24,998.

Question 14

Mike purchases a computer (5-year property)for $3,000 during the current year.He uses the computer 40% of the time in his consulting business.Mike would like to maximize his cost recovery deduction.What is his allowable cost recovery deduction on the computer?

Accepted Answer

The answer of Mike purchases a computer (5-year property)for $3,000...

Question 15

Listed property rules include the following:
I.If listed property is not predominantly used in the taxpayer's business,the business-use portion of the asset cannot be depreciated.
II.If more than 50 percent of the listed property's total use for each year is related to the taxpayer's business,the asset is treated the same as any other mixed-use business asset.
III.When listed property is used 50% or less in the taxpayer's business,the Section 179 expense election does not apply to the asset.
IV.Listed property includes computers,and passenger automobiles.
​

Accepted Answer

Statement II is correct because if more than 50% of the use is business-related, it is treated like any other business asset. Statement III is correct because the Section 179 expense election does not apply if business use is 50% or less. Statement IV is correct because listed property includes computers and passenger automobiles. Statement I is incorrect because the business-use portion can still be depreciated, just not using accelerated methods.

Question 16

Which of the following correctly describe(s)cost recovery of automobiles placed in service in 2016?

Accepted Answer

The amount of the depreciation deduction for automobiles placed in service in 2016 cannot exceed $11,160. This amount includes both bonus depreciation and regular depreciation. Option A is incorrect because bonus depreciation is limited to $8,000 for automobiles placed in service in 2016. Option B is incorrect because cost recovery is allowed even if the automobile is used 50% or less for trade or business, but the depreciation deduction is reduced based on the percentage of personal use. Option D is incorrect because cost recovery is allowed for automobiles used for the production of income activities, but the depreciation deduction is reduced based on the percentage of business use.

Question 17

Delta Freight Company purchases 10 delivery vans on April 4,2017,at a total cost of $366,000.Delta uses the regular MACRS system on all of its delivery vans (the delivery vans are 5-year MACRS property and are not limited by listed property rules).Delta's annual income is $15,000 before the depreciation deduction.What is Delta's maximum cost recovery deduction on the vans in 2017?

Accepted Answer

The answer of Delta Freight Company purchases 10 delivery vans...

Question 18

During 2017,Duncan Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property with an ADS recovery period of 10 years.Duncan desires to avoid the AMT.What is its minimum 2017 depreciation deduction?

Accepted Answer

The answer of During 2017,Duncan Company purchases and places in...

Question 19

Mountain View Development Co.purchases a new high volume paper shredder for use in their document management department for $20,000 on November 7 of 2017.It was the only piece of depreciable property placed in service during 2017.The paper shredder is 7-year MACRS property,the Section 179 election to expense was not exercised.What is Mountain View's 2017 depreciation deduction on the paper shredder?

Accepted Answer

The answer of Mountain View Development Co.purchases a new high...

Question 20

Which of the following would not be considered to be Listed Property for depreciation purposes?

Accepted Answer

The answer of Which of the following would not be...

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

Jim places a new lift truck (7-year MACRS property) into service on January 16,2017.He pays $30,000 for the truck.This is the only business asset placed into service during this year.Jim does not desire to use the Section 179 election.How much depreciation may Jim deduct for 2017?

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS) ? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period.

During 2017,Williams Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property.What is its 2017 depreciation deduction for purposes of the alternative minimum tax?

Chestnut Furniture Company purchases a delivery van on June 14,2017,at a cost of $30,000.The delivery van has a 5-year MACRS life and an ADS recovery period of 5 years.What is Chestnut's minimum cost recovery deduction on the van in 2017?

Wellington Apartments purchases an apartment building on November 9,2017,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2017 MACRS depreciation deduction?

On August 3,2017,Yang purchases office furniture (7-year property) costing $21,000 for use in her business.She does not wish to use the Section 179 election and makes the election to use the straight-line method over the MACRS recovery period.What is Yang's 2017 cost recovery deduction?

On July 17,2017,Elise purchases office furniture (7-year property) costing $50,000 for use in her business.She wishes to use the Section 179 election.Her taxable income before the depreciation deduction is $25,000.What is the maximum total cost recovery deduction Elise can take for the current year?

Lindale Rentals places an apartment building in service on November 22,2017.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2017 depreciation deduction on the property?

Daniel purchases 5-year class listed property (a computer) on March 2,2017,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2017 depreciation deduction.What is Daniel 's 2017 depreciation deduction?

Wilson Corporation purchases a factory building on September 29,2017,for $4,000,000 (exclusive of the amount allocated to the land) .It elects the alternative depreciation system (ADS) .What is the 2017 depreciation deduction?

Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2017 MACRS depreciation deduction?

Tucker Estates places an apartment building in service on November 22,2013.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2017.What is Tucker Estates' 2017 depreciation deduction on the property?

Mike purchases a computer (5-year property) for $3,000 during the current year.He uses the computer 40% of the time in his consulting business.Mike would like to maximize his cost recovery deduction.What is his allowable cost recovery deduction on the computer?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2016?

During 2017,Duncan Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property with an ADS recovery period of 10 years.Duncan desires to avoid the AMT.What is its minimum 2017 depreciation deduction?

Which of the following would not be considered to be Listed Property for depreciation purposes?

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

Jim places a new lift truck (7-year MACRS property) into service on January 16,2017.He pays $30,000 for the truck.This is the only business asset placed into service during this year.Jim does not desire to use the Section 179 election.How much depreciation may Jim deduct for 2017?

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS) ? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period. ​

During 2017,Williams Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property.What is its 2017 depreciation deduction for purposes of the alternative minimum tax?

Chestnut Furniture Company purchases a delivery van on June 14,2017,at a cost of $30,000.The delivery van has a 5-year MACRS life and an ADS recovery period of 5 years.What is Chestnut's minimum cost recovery deduction on the van in 2017?

Wellington Apartments purchases an apartment building on November 9,2017,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2017 MACRS depreciation deduction?

On August 3,2017,Yang purchases office furniture (7-year property) costing $21,000 for use in her business.She does not wish to use the Section 179 election and makes the election to use the straight-line method over the MACRS recovery period.What is Yang's 2017 cost recovery deduction?

Lindale Rentals places an apartment building in service on November 22,2017.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2017 depreciation deduction on the property?

Daniel purchases 5-year class listed property (a computer) on March 2,2017,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2017 depreciation deduction.What is Daniel 's 2017 depreciation deduction?

Wilson Corporation purchases a factory building on September 29,2017,for $4,000,000 (exclusive of the amount allocated to the land) .It elects the alternative depreciation system (ADS) .What is the 2017 depreciation deduction?

Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2017 MACRS depreciation deduction?

Tucker Estates places an apartment building in service on November 22,2013.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2017.What is Tucker Estates' 2017 depreciation deduction on the property?

Mike purchases a computer (5-year property) for $3,000 during the current year.He uses the computer 40% of the time in his consulting business.Mike would like to maximize his cost recovery deduction.What is his allowable cost recovery deduction on the computer?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2016?

During 2017,Duncan Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property with an ADS recovery period of 10 years.Duncan desires to avoid the AMT.What is its minimum 2017 depreciation deduction?

Which of the following would not be considered to be Listed Property for depreciation purposes?

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS) ? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period.