Deck 26: Depreciation,cost Recovery,amortization,and Depletion

Question 1

Under the MACRS system,automobiles and computers are classified as seven-year property.

Answer 1

False

Question 2

Because Jim and his family enjoy camping,he bought a pickup truck last year for personal use.The truck cost $40,000.Jim is starting a landscaping business this year and will now be using the truck in the business full-time.Based on online searches,similar trucks are selling for $32,000.When determining his business income,Jim will be able to calculate depreciation on the truck,using the $40,000 cost as basis.

Answer 2

False

Question 3

MACRS recovery property includes tangible personal and real property that is used in a trade or business.

Answer 3

True

Question 4

If personal-use property is converted to trade or business use,the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Question 5

Sec.179 tax benefits are recaptured if at any time an asset is converted to personal use.

Question 6

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

Question 7

Section 179 allows taxpayers to immediately expense up to $1,020,000 for 2019 of the cost of real and personal property placed into service in a trade or business,subject to limitations.

Question 8

On its tax return,a corporation will use the same depreciation,amortization and depletion methods used in its financial statements issued to shareholders.

Question 9

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.

Question 10

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Question 11

In computing MACRS depreciation in the year of disposition of personal property used in a trade or business,the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.

Question 12

The Section 179 expensing election is available on an annual basis for property purchased during the year.

Question 13

The basis of an asset must be reduced by the depreciation allowable.

Question 14

Intangible assets are subject to MACRS depreciation.

Question 15

Under the MACRS rules,salvage value is not considered in the computation of the cost-recovery or depreciation amount.

Question 16

Land,buildings,equipment,and common stock are examples of tangible property.

Question 17

Depreciable property includes business,investment,and personal-use assets.

Question 18

Under the MACRS system,depreciation rates for real property must always use the mid-month convention in the year of acquisition.

Question 19

In order for an asset to be depreciated in the year of purchase,it must be placed in service before year's end.

Question 20

With respect to options to accelerate depreciation deductions for new qualifying assets,a taxpayer must elect into Sec.179 expensing,but elect out of bonus depreciation.

Question 21

Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.

Question 22

Terra Corporation,a calendar-year taxpayer,purchases and places into service machinery with a 7-year life that costs $1,160,000 on April 27,2019.It was placed in service early in the year and was the only addition this year.Terra elects to depreciate the maximum under Sec.179 and does not apply bonus depreciation.Terra's taxable income for the year before the Sec.179 deduction is $1,700,000.What is Terra's total depreciation deduction related to this property?

A)$1,160,000
B)$1,040,006
C)$165,764
D)$1,048,000

Question 23

The straight-line method may be elected for depreciating tangible personal property placed in service after 1986.

Question 24

The mid-quarter convention applies to personal and real property.

Question 25

The election to use ADS is made on a year-by-year,property-class by property-class basis for real and personal property.

Question 26

Under the MACRS system,the same convention that applies in the year of acquisition (e.g.,half-year,mid-quarter,or mid-month)also applies in the year of disposition.

Question 27

In April 2019,Emma acquired a machine for $60,000 for use in her business.The machine is classified as 7-year property.Emma does not expense the asset under Sec.179 or bonus depreciation.Emma's depreciation on the machine for 2019 is

A)$30,000.
B)$60,000.
C)$6,428.
D)$8,574.

Question 28

Residential rental property is defined as property from which more than 80% of the gross rental income is rental income from dwelling units.

Question 29

On January 3,2016,John acquired and placed into service business tools costing $10,000.The tools have a 3-year class life.No other assets were purchased during that year.The depreciation in 2019 for those tools is (Sec.179 and bonus depreciation were not applied)

A)$0.
B)$741.
C)$1,920.
D)$3,333.

Question 30

When a taxpayer leases an automobile for 100% business purposes,the entire lease payment is deductible.

Question 31

Once the business use of listed property falls to 50% or below,the alternative depreciation system must be used for the current year and all subsequent years,even if the business use percentage increases to more than 50% in a subsequent year.

Question 32

In May 2019,Cassie acquired a machine for $30,000 to use in her business.The machine is classified as 5-year property.Cassie does not expense the property under Sec.179 or bonus depreciation.Cassie's depreciation on the machine for 2019 is

A)$3,000.
B)$6,000.
C)$12,000.
D)$15,000.

Question 33

Joan bought a business machine for $15,000.In a later year,she sold the machine for $12,800 when the total allowable depreciation is $8,500.The depreciation actually taken on the tax returns totaled $8,000.Joan must recognize a gain (or loss)of

A)no gain or loss.
B)($3,200).
C)$6,800.
D)$6,300.

Question 34

The MACRS system requires that residential rental property and nonresidential real property be depreciated using the straight-line method.

Question 35

When depreciating 5-year property,the final year of depreciation will be year

A)3)
B)4)
C)5)
D)6)

Question 36

Chahana acquired and placed in service $1,185,000 of equipment on August 1,2019 for use in her sole proprietorship.The equipment is 5-year recovery property.No other acquisitions are made during the year.Chahana elects to expense the maximum amount under Sec.179,and bonus depreciation is not applied.Chahana's total deductions for 2019 (including Sec.179 and depreciation)are

A)$1,020,000.
B)$237,000.
C)$1,185,000.
D)$1,053,000.

Question 37

Tronco Inc.placed in service a truck costing $40,000 on January 15 of this year.On November 1,the company placed in service $200,000 of construction equipment.Tronco is a calendar-year taxpayer.When calculating MACRS depreciation,Tronco must apply the mid-quarter convention to the construction equipment,but will use the half-year convention for the truck.

Question 38

If the business use of listed property decreases to 50% or less of the total usage,the property is subject to depreciation recapture.

Question 39

If the business use of listed property is 50% or less of the total usage,the alternative depreciation system must be used.

Question 40

If a new luxury automobile is used 100% for business and placed in service in 2019,the maximum MACRS depreciation on the vehicle for 2019 is $18,100.

Question 41

On April 12,2018,Suzanne bought a computer for $20,000 for business use.This was the only purchase for that year.Suzanne used the most accelerated depreciation method available but did not apply Sec.179 or bonus depreciation.Suzanne sells the machine in 2019.The depreciation on the computer for 2019 is

A)$2,000.
B)$3,200.
C)$4,000.
D)$6,400.

Question 42

All of the following are true with regard to the alternative depreciation system except

A)the principal type of property for which ADS is required is any tangible property which is used predominantly outside of the United States.
B)the ADS election is available to real property on a property-by-property basis.
C)the ADS election is available to personal property on a property-by-property basis.
D)once the ADS election is made for specified property,it is irrevocable.

Question 43

On October 2,2019,Dave acquired and placed into service 5-year business equipment costing $70,000.No other acquisitions were made during the year.Dave does not apply Sec.179 expensing or bonus depreciation.The depreciation for this year is

A)$0.
B)$3,500.
C)$7,000.
D)$14,000.

Question 44

Which of the following statements regarding Sec.179 is true?

A)If a taxpayer places in service property costing more than the Sec.179 ceiling on the amount of property placed in service,the excess can be carried over to subsequent years.
B)Amounts of the Sec.179 election in excess of the taxable income limitation are carried forward.
C)Sec.179 carryforwards expire after five years.
D)All of the above statements are true.

Question 45

Atiqa took out of service and sold a residential rental property on October 31 of this year.She had originally acquired the property in July ten years ago.The building (excluding the value of the land)cost $1,000,000.How much is her current year depreciation deduction?

A)$30,300
B)$36,360
C)$18,182
D)$28,785

Question 46

Ilene owns an unincorporated manufacturing business.In 2019,she purchases and places in service $2,650,000 of qualifying five-year equipment for use in her business.Her taxable income from the business before any depreciation deduction is $900,000.Ilene will elect out of bonus depreciation but plans to take the maximum allowable deduction under Sec.179.Which of the following statements is true regarding the Sec.179 election?

A)Ilene can deduct $1,020,000 as a Sec.179 deduction in 2019,with no carryover to next year.
B)Ilene can deduct $920,000 as a Sec.179 deduction in 2019,with no carryover to next year.
C)IIene can deduct $900,000 as a Sec.179 deduction in 2019; $20,000 may be carried over to next year.
D)Ilene can deduct $900,000 as a Sec.179 deduction in 2019,with no carryover to next year.

Question 47

Caitlyn purchases and places in service property costing $1,050,000 in 2019.She wants to elect the maximum Sec.179 deduction allowed and does not plan to apply bonus depreciation.Her business income is $900,000.What is the amount of her allowable Sec.179 deduction and carryover,if any?

A) $$\begin{array} {| l | l| } \hline 179 \text { deduction } & \text { Carryover } \\\hline \$ 1,020,000 & 0\\\hline\end{array}$$
B) $$\begin{array} { | l | l |} \hline 179 \text { deduction } & \text { Carryover } \\\hline\$ 900,000 & 0\\\hline\end{array}$$
C) $$\begin{array} {| l | l | } \hline 179 \text { deduction } & \text { Carryover } \\\hline \$ 900,000 & \$ 120,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline 179 \text { deduction } & \text { Carryover } \\\hline \$ 900,000 & \$ 150,000 \\\hline\end{array}$$

Question 48

In November 2019,Kendall purchases a computer for $4,000.She does not apply Sec.179 expensing or bonus depreciation.The computer is the only personal property which she places in service during the year.What is her total depreciation deduction for this year?

A)$200
B)$572
C)$800
D)$1,000

Question 49

For real property placed in service after 1986,depreciation under the MACRS system is calculated using the

A)straight-line method and a half-year convention in the year of acquisition and in the year of disposition.
B)straight-line method and a mid-month convention in the year of acquisition and in the year of disposition.
C)200% DB method and a mid-month convention in the year of acquisition and in the year of disposition.
D)200% DB method and a half-year convention in the year of acquisition and in the year of disposition.

Question 50

William purchases nonresidential real property costing $300,000 and places it in service in March 2018.What is Lincoln's 2019 depreciation on the property?

A)$6,099
B)$7,692
C)$8,637
D)$10,908

Question 51

Enrico is a self-employed electrician.In May of the current year,Enrico acquired a used van (5-year property)for $12,000.He used the van 80% for business and 20% for personal purposes.Enrico does not apply Sec.179 or bonus depreciation.The maximum depreciation deduction for the van is

A)$1,200.
B)$2,400.
C)$6,720.
D)$1,920.

Question 52

A client placed $2,800,000 of five-year equipment into service in January 2019.Because taxable income is more than $10,000,000,she would like to maximize this year's depreciation deduction.The largest deduction allowed is

A)$2,800,000.
B)$560,000.
C)$1,176,000.
D)$1,020,000.

Question 53

Fariq purchases and places in service in 2019 personal property costing $2,571,000.The taxpayer plans to apply the Sec.179 deduction,but not bonus depreciation.What is the maximum Sec.179 deduction that Fariq can deduct,ignoring any taxable income limitation?

A)$2,550,000
B)$0
C)$999,000
D)$1,020,000

Question 54

On November 3rd of this year,Kerry acquired and placed into service 7-year business equipment costing $80,000.In addition,on May 5th of this year,Kerry had also placed in business use 5-year recovery property costing $15,000.Kerry did not apply Sec.179 immediate expensing or bonus depreciation.No other assets were purchased during the year.The depreciation for this year is

A)$3,606.
B)$6,606.
C)$13,576.
D)$14,432.

Question 55

A client placed three new business assets into service in 2019.The client has high taxable income and would like to maximize the deduction by using bonus depreciation.All of the following assets will qualify for bonus depreciation except

A)manufacturing equipment.
B)computer software.
C)a garage for the service vans.
D)All of the assets qualify for bonus depreciation.

Question 56

Sophie owns an unincorporated manufacturing business.In 2019,she purchases and places in service $2,557,000 of qualifying five-year equipment for use in her business.Her taxable income from the business before any Sec.179 deduction is $940,000.Sophie elects to expense the maximum under Sec.179 and does not apply bonus depreciation.What is Sophie's maximum total cost recovery deduction for 2019?

A)$940,000
B)$1,013,000
C)$1,250,800
D)$1,323,800

Question 57

On August 11,2019,Nancy acquired and placed into service residential rental property,which cost $430,000; the cost of the land has been excluded.Nancy annually elects the maximum allowed Sec.179 deduction.The total depreciation for the year is (rounded)

A)$5,865.
B)$4,141.
C)$5,117.
D)$15,636.

Question 58

Paul bought a computer for $15,000 for business use on March 18,2017.This was his only purchase for that year.Paul used the most accelerated depreciation method available,but did not elect Sec.179 and the property did not qualify for bonus depreciation.Paul sells the machine in 2019.The depreciation on the computer for 2019 is

A)$0.
B)$1,440.
C)$1,500.
D)$2,880.

Question 59

If the business usage of listed property is less than or equal to 50% of its total usage,depreciation is calculated using the

A)regular MACRS tables.
B)alternative depreciation system.
C)regular MACRS tables and a mid-month convention.
D)It may not be depreciated.

Question 60

Harrison acquires $65,000 of 5-year property in June 2017 that is required to be depreciated using the mid-quarter convention (because of other purchases that year).He did not elect Sec.179 immediate expensing.Bonus depreciation was not available.If Harrison sells the property on August 23,2019,what is the amount of depreciation claimed in 2019?

A)$6,500.00
B)$7,312.50
C)$11,700.00
D)$9,289.00

Question 61

In accounting for research and experimental expenditures incurred in 2019,all of the following alternatives are available with the exception of

A)expense R&E costs in the year paid or incurred.
B)expense R&E costs in the year in which a product or process becomes marketable.
C)defer and amortize R&E costs as a ratable deduction over a period of 60 months or more.
D)capitalize and write off R&E costs only when the research project is abandoned or is worthless.

Question 62

Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000.No hardware was acquired.How much of the cost can Galaxy deduct this year?

A)$18,000
B)$15,000
C)$30,000
D)$90,000

Question 63

Arthur uses a Chevrolet Suburban (GVWR 7,500 pounds)100% for business.He acquired and placed the vehicle in service in his business in January of the current year.The vehicle cost $65,000.The maximum deduction allowed this year is

A)$13,000.
B)$18,000.
C)$25,000.
D)$65,000.

Question 64

In February 2019,Pietra acquired a new car costing $82,000.She used the car 80% in her sole proprietorship.Assuming Sec.179 is not elected,Pietra's maximum depreciation deduction allowable for the car will be

A)$65,600.
B)$13,120.
C)$14,480.
D)$8,080.

Question 65

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

Question 66

Costs that qualify as research and experimental expenditures include all of the following except

A)depreciation of laboratory equipment.
B)management studies.
C)costs incurred in developing product improvements.
D)costs of obtaining a patent such as attorney fees.

Question 67

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.

Question 68

In February 2019,Dante acquired a new car costing $82,000.He used the car 80% in his sole proprietorship.Assuming Dante does not claim Sec.179 or bonus depreciation,Dante's maximum depreciation deduction allowable for the car will be

A)$13,120.
B)$8,080.
C)$10,100.
D)$14,480.

Question 69

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

Question 70

On January 1,2019,Charlie Corporation acquires all of the net assets of Rocky Corporation for $2,000,000.The following intangible assets are included in the purchase agreement: $$\begin{array} { | l | r | } \hline \text { Assets } & \text { Acquisition Cost } \\\hline \text { Goodwill and going concern value } & \$ 105,00 \\\hline \text { Licenses } & \$ 45,000 \\\hline \text { Patents } & \$ 60,000 \\\hline \text { Covenant not to compete for five years } & \$ 120,000 \\\hline\end{array}$$ What is the total amount of amortization allowed in 2019?

A)$15,000
B)$22,000
C)$31,000
D)$38,000

Question 71

Most taxpayers elect to expense R&E expenditures because of the immediate tax benefit.

Question 72

Off-the-shelf computer software that is purchased for use in the taxpayer's trade or business is amortized over 36 months,or it can be immediately expensed under a Sec.179 election.

Question 73

This year Bauer Corporation incurs the following costs in development of new products: $$\begin{array} { | l | r | } \hline \text { Laboratory supplies } & \$ 55,000 \\\hline \text { Laboratory equipment purchased } & 50,000 \\\text { (5-year recovery property) } & \\\hline \text { Salaries (lab personnel) } & 90,000 \\\hline \text { Utilities } & 20,000 \\\hline \text { Total } & \$ 215,000 \\\hline\end{array}$$ No benefits are realized from the research expenditures until next year.The corporation does not claim Sec.179 or bonus depreciation on any of its assets.If Bauer Corporation elects to expense the research expenditures,the deduction is

A)$10,000 this year and $175,000 next year.
B)$175,000 next year.
C)$175,000 this year.
D)$215,000 this year.

Question 74

On January l,2019,Grace leases and places into service an automobile with a FMV of $61,000.The business use of the automobile is 60%.The "inclusion amount" for the initial year of the lease from the IRS tables is $46.The annual lease payments are $11,000.What are the tax consequences of this lease?

A)deduction for lease payments of $6,572
B)deduction for lease payments of $6,554
C)deduction for lease payments of $6,600
D)deduction for lease payment of $6,646

Question 75

Enrico is a self-employed electrician.In May of the current year,Enrico acquired a used van (5-year property)for $12,000.He used the van 30% for business.Bonus depreciation is not applied.The maximum depreciation deduction for the van is

A)$360.
B)$720.
C)$2,400.
D)$1,980.

Question 76

In April of 2018,Brandon acquired equipment which is five-year listed property (not an automobile)for $30,000 and used it 70% for business.Brandon did not claim Sec.179 or bonus depreciation.In 2019,his business use of the property dropped to 40%.Which of the following statements is true?

A)The change does not affect Brandon's previous depreciation.
B)Brandon must recapture $2,100 as ordinary income.
C)Brandon must recapture $4,200 as ordinary income.
D)Brandon must amend the previous tax return and recompute depreciation.

Question 77

On January 1 of the current year,Dentux Corp.purchases a patent from another corporation for $600,000.The patent has a remaining life of 10 years.The patent is the only asset purchased from that corporation.Also on January 1,Dentux purchases all of the assets of Fenton Corp.Included in the Fenton assets acquired is a patent worth $300,000 that has a 10-year remaining life.What is the allowable amortization deduction on the two patents?

A)$60,000
B)$90,000
C)$80,000
D)$160,000

Question 78

In February 2019,Pietra acquired a new automobile for $82,000 and used the automobile 80% for business.In 2020 her business use of the auto was 70%.Pietra's depreciation deduction for 2020 will be

A)$11,270.
B)$18,368.
C)$12,670.
D)$4,032.

Question 79

If a company acquires goodwill in connection with the acquisition of a business,the goodwill is amortizable over a 60-month period.

Question 80

A taxpayer owns an economic interest in an oil and gas property.She is allowed to deduct the smaller of cost depletion or percentage depletion.