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

Question 1

The key date for calculating cost recovery is the date the asset is placed in service.

Answer 1

True

Question 2

All eligible real estate under MACRS is permitted one-half month of cost recovery in the month of disposition.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

In a farming business, MACRS straight-line cost recovery is required for all fruit bearing trees.

Question 5

The cost recovery period for new farm equipment placed in service during 2012 is seven years.

Question 6

In a farming business, if the uniform capitalization rules are not used, cost is recovered using the ADS straight-line method.

Question 7

The basis of cost recovery property must be reduced by the cost recovery allowed.

Question 8

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Question 9

The concept of depreciation assumes that the asset has a determinable useful life.

Question 10

Land improvements are generally not eligible for cost recovery.

Question 11

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 will be allowed 1.5 months of cost recovery.

Question 12

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 placed in service.

Question 13

Motel buildings are classified as residential rental real estate.

Question 14

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

Question 15

If 150% declining-balance is used, there is no straight-line switchover.

Question 16

All personal property placed in service in 2012 and used in a trade or business qualifies for additional first-year depreciation.

Question 17

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

Question 18

Under the MACRS straight-line election for personalty, the mid-quarter convention is applicable.

Question 19

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

Question 20

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Question 21

If a used $15,000 automobile used 100% for business in the first year (2012) fails the 50% business usage test in the second year, no cost recovery will be recaptured.

Question 22

The § 179 deduction can exceed $139,000 in 2012 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

Question 23

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

Question 24

MACRS depreciation is used to compute earnings and profits.

Question 25

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

Question 26

The costs of qualified leasehold improvements qualify for additional first-year depreciation.

Question 27

If an automobile is placed in service in 2012, the limitation for cost recovery in 2014 will be based on the cost recovery limits for the year 2012.

Question 28

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

Question 29

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

Question 30

All listed property is subject to the substantiation requirements of § 274.

Question 31

Property used for the production of income is not eligible for § 179 expensing.

Question 32

A taxpayer may elect to use the alternative depreciation system (ADS) on property used predominantly outside the United States.

Question 33

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used for the production of income is $25,000.

Question 34

The basis of an asset on which $139,000 has been expensed under § 179 will be reduced by $139,000, even if $139,000 cannot be expensed in the current year because of the taxable income limitation.

Question 35

If a new car that is used predominantly in business is placed in service in 2012, the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight-line depreciation.

Question 36

For personal property placed in service in 2012, the § 179 maximum deduction is limited to $139,000.

Question 37

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Question 38

The statutory dollar cost recovery limits under § 280F for passenger automobiles still apply if mid-quarter cost recovery is used.

Question 39

The statutory dollar cost recovery limits under § 280F do not apply to all automobiles.

Question 40

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

Question 41

Intangible drilling costs may be expensed rather than capitalized and written off through depletion.

Question 42

If startup expenses total $53,000 in 2012, $51,000 is amortized over 180 months.

Question 43

Hazel purchased a new business asset (five-year asset) on September 30, 2012, at a cost of $100,000. On October 4, 2012, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2012. The only election with respect to the asset was not to take § 179. On August 20, 2013, Hazel sold the asset. Determine the cost recovery for 2013 for the asset.

A)$9,600.
B)$11,875.
C)$23,750.
D)$38,000.
E)None of the above.

Question 44

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are as follows: If Tara sells the machine after three years for $15,000, how much gain should she recognize?

A)$3,480.
B)$6,360.
C)$9,240.
D)$11,480.
E)None of the above.

Question 45

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

Question 46

James purchased a new business asset (three-year personalty) on July 23, 2012, at a cost of $40,000.James takes additional first-year depreciation Determine the cost recovery deduction for 2012.

A)$8,333.
B)$26,666.
C)$33,333.
D)$41,665.
E)None of the above.

Question 47

Which of the following assets would be subject to cost recovery?

A)A painting by Picasso hanging on a doctor's office wall.
B)An antique vase in a doctor's waiting room.
C)Stock in the doctor's LLC.
D)a., b., and c.
E)None of the above.

Question 48

Percentage depletion enables the taxpayer to recover more than the cost of an asset.

Question 49

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

Question 50

The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 20 years.

Question 51

Bonnie purchased a new business asset (five-year property) on March 10, 2012, at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20, 2012, at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnies takes additional first-year depreciation. Determine the cost recovery deduction for 2012 for these assets.

A)$5,858.
B)$7,464.
C)$9,586.
D)$19,429.
E)None of the above.

Question 52

A purchased trademark is a § 197 intangible.

Question 53

Barry purchased a used business asset (seven-year property) on September 30, 2012, at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179, nor did he elect straight-line cost recovery.Barry sold the asset on July 17, 2013.Determine the cost recovery deduction for 2013.

A)$19,133.
B)$24,490.
C)$34,438.
D)$55,100.
E)None of the above.

Question 54

Alice purchased office furniture on September 20, 2012, 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. She did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2012.

A)$6,426.
B)$14,710.
C)$25,722.
D)$30,290.
E)None of the above.

Question 55

The amortization period in 2012 for $4,000 of startup expenses if no election is made is 180 months.

Question 56

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

Question 57

Tan Company acquires a new machine (ten-year property) on January 15, 2012, at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5, 2012, at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election. Tan takes additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2012.

A)$24,000.
B)$25,716.
C)$102,000.
D)$132,858.
E)None of the above.

Question 58

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

A)In the current year using a mid-quarter convention.
B)In the current year using a half-year convention.
C)In the following year using a mid-quarter convention.
D)In the following year using a half-year convention.
E)None of the above.

Question 59

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 $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

A)$70,000.
B)$90,000.
C)$120,000.
D)$140,000.
E)None of the above.

Question 60

Goodwill associated with the acquisition of a business cannot be amortized.

Question 61

The only asset Bill purchased during 2012 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 2012.

A)$1,428.
B)$2,499.
C)$26,749.
D)$33,375.
E)None of the above.

Question 62

Janet purchased a new car on June 5, 2012, at a cost of $18,000.She used the car 80% for business and 20% for personal use in 2012.She used the automobile 40% for business and 60% for personal use in 2013. Janet takes additional first-year depreciation. Determine Janet's cost recovery recapture for 2013.

A)$0.
B)$928.
C)$1,008.
D)$7,408.
E)None of the above.

Question 63

On June 1, 2012, James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car.) James does take additional first-year depreciation.Determine the cost recovery deduction for 2012.

A)$1,776.
B)$1,836.
C)$6,636.
D)$8,000.
E)None of the above.

Question 64

On May 2, 2012, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine the cost recovery for 2012.Karen wants to maximize her deductions.

A)$2,200.
B)$3,060.
C)$25,000.
D)$27,200.
E)None of the above.

Question 65

Augie purchased one new asset during the year (five-year property) on November 10, 2012, at a cost of $450,000. She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $310,000.She takes additional first-year depreciation. Determine the total cost recovery deduction with respect to the asset for 2012.

A)$22,500.
B)$154,550.
C)$302,275.
D)$310,000.
E)None of the above.

Question 66

Cora purchased a hotel building on May 17, 2012, for $3,000,000.Determine the cost recovery deduction for 2013.

A)$48,150.
B)$59,520.
C)$69,000.
D)$76,920.
E)None of the above.

Question 67

On June 1, 2012, Sam purchased new farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has, however, made an election to not have the uniform capitalization rules apply to the farming business. Sam does not take additional first-year depreciation. Determine the cost recovery deduction for 2012.

A)$5,000.
B)$7,500.
C)$10,000.
D)$12,500.
E)None of the above.

Question 68

Carlos purchased an apartment building on November 16, 2012, for $3,000,000.Determine the cost recovery for 2012.

A)$9,630.
B)$11,910.
C)$13,950.
D)$22,740.
E)None of the above.

Question 69

Diane purchased a factory building on November 15, 1993, for $5,000,000.She sells the factory building on February 2, 2012.Determine the cost recovery deduction for the year of the sale.

A)$16,025.
B)$19,844.
C)$26,458.
D)$158,750.
E)None of the above.

Question 70

On May 15, 2012, Brent purchased new farm equipment for $120,000.Brent used the equipment in connection with his farming business. Brent does not elect to expense assets under § 179. Brent does not take additional first-year depreciation.Determine the cost recovery deduction for 2012.

A)$12,852.
B)$18,000.
C)$24,000.
D)$30,000.
E)None of the above.

Question 71

On February 20, 2012, Susan paid $200,000 for a qualified leasehold improvement to an office building that she is going to lease to John.The lease will begin on June 1, 2012, and terminate on May 31, 2022.At the termination of the lease, the improvement will be worthless.Susan did not elect to treat the leasehold improvement property as § 179 property.She does not take additional first-year depreciation. Determine Susan's deductible loss as a result of the termination of the lease.

A)$0.
B)$123,503.
C)$127,990.
D)$128,631.
E)None of the above.

Question 72

On June 1, 2012, Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation.Determine the cost recovery deduction for 2013.

A)$3,060.
B)$3,290.
C)$3,430.
D)$6,720.
E)None of the above.

Question 73

On May 30, 2012, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2012. In August 2012, Jane paid $300,000 for qualified leasehold improvements to the building. Jane takes additional first-year depreciation. Determine Jane's total deduction with respect to the leasehold improvements for 2012.

A)$2,890.
B)$150,000.
C)$151,445.
D)$300,000.
E)None of the above.

Question 74

White Company acquires a new machine (seven-year property) on January 10, 2012, at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method. White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2012 assuming White has taxable income of $800,000.

A)$71,593.
B)$128,610.
C)$204,877.
D)$385,296.
E)None of the above.

Question 75

In 2011, Gail had a § 179 deduction carryover of $25,000.In 2012, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2012 is $142,000.Determine Gail's § 179 deduction for 2012.

A)$25,000.
B)$115,000.
C)$130,000.
D)$140,000.
E)None of the above.

Question 76

Mary purchased a new five-year class asset on March 7, 2012.The asset was listed property (not an automobile).It was used 60% for business and the rest of the time for personal use.The asset cost $600,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $400,000.Mary does take additional first-year depreciation. Determine the total deductions with respect to the asset for 2012.

A)$72,000.
B)$250,000.
C)$272,000.
D)$360,000.
E)None of the above.

Question 77

Doug purchased a new factory building on January 15, 1988, for $400,000.On March 1, 2012, the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method.

A)$0.
B)$1,587.
C)$2,645.
D)$12,696.
E)None of the above.

Question 78

Howard's business is raising and harvesting peaches.On March 10, 2012, Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2012.

A)$0.
B)$3,000.
C)$31,500.
D)$60,000.
E)None of the above.

Question 79

Hans purchased a new passenger automobile on August 17, 2012, 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 2012.

A)$500.
B)$1,000.
C)$1,224.
D)$1,500.
E)None of the above.

Question 80

On July 17, 2012, Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2013, he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2013.

A)$0.
B)$448.
C)$2,000.
D)$2,500.
E)None of the above.