Question 1

Wellington Company purchases a new warehouse on August 24,1993,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2013 MACRS depreciation deduction?

Accepted Answer

The depreciable basis of the warehouse would be $1,000,000 minus the allocated cost of the land. Assuming the land is valued at $200,000, the depreciable basis would be $800,000. Using MACRS depreciation, the building would be depreciated over 39 years. Using the MACRS depreciation software, the depreciation deduction for the 2013 tax year would be $31,740. Therefore, the correct answer is choice C.

Question 2

Wellington Apartments purchases an apartment building on November 9,2013,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2013 MACRS depreciation deduction?

Accepted Answer

To calculate the MACRS depreciation deduction, we first need to determine the property's class life. Apartment buildings have a class life of 27.5 years. Since the property was purchased on November 9, 2013, it was in service for 53/365 days in 2013. Therefore, the depreciation deduction for 2013 would be:

($1,000,000 / 27.5) x (53/365) x 0.2 = $4,550 (rounded to the nearest dollar).

So, the best choice is B.

Question 3

Daniel purchases 5-year class listed property (a computer)on March 2,2013,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2013 depreciation deduction.What is Daniel 's 2013 depreciation deduction?

Accepted Answer

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

Question 4

In June 2012,Chase purchases a new car for $37,000.He uses the car 75% for business purposes.What is Chase's maximum depreciation deduction for the car in 2012?

Accepted Answer

Chase's maximum depreciation deduction for the car in 2012 is calculated as follows:
First, we need to determine the car's basis for depreciation. Since Chase purchased the car for $37,000, the basis is $37,000.
Next, we need to determine the percentage of business use. Chase uses the car 75% for business purposes, so the percentage of business use is 75%.
For cars placed in service in 2012, the maximum depreciation deduction in the first year is $11,160. However, this maximum deduction is reduced by the percentage of business use. 
So, Chase's maximum depreciation deduction for the car in 2012 is:
$11,160 x 75% = $8,370. 
Therefore, the best choice is D.

Question 5

Lindale Rentals places an apartment building in service on November 22,2013.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2013 depreciation deduction on the property?

Accepted Answer

The depreciation deduction for a residential rental property is calculated using the straight-line method over 27.5 years. Since the building was placed in service in November, only one month of depreciation will be taken in 2013.

Calculation: 
$3,300,000 / 27.5 years = $120,000 per year
$120,000 / 12 months = $10,000 per month
$10,000 x 1 month = $10,000

Therefore, Lindale Rentals' 2013 depreciation deduction on the property is $10,000, which corresponds to choice B.

Question 6

Which of the following correctly describe(s)cost recovery of automobiles placed in service in 2012?

Accepted Answer

According to IRS regulations, the maximum amount of depreciation deduction that can be taken for automobiles placed in service in 2012 is $11,160. This is the correct option. Options A and B are incorrect as they state limitations that do not reflect the 2012 regulations. Option D is incorrect as it is a blanket statement that does not differentiate between the types of income-producing activities.

Question 7

Greenville Floral places a new tractor (7-year MACRS)into service on January 8,2013.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 2013.What is Greenville Floral's cost recovery for 2013?

Accepted Answer

Since Greenville Floral wants to minimize the amount of depreciation deductible in 2013, they should use the MACRS half-year convention. Using the IRS MACRS depreciation table, the 7-year MACRS rate for the tractor is 14.29%. With the half-year convention, they can only claim 50% of that rate in the first year, which is 7.145%. Therefore, their cost recovery for 2013 is $28,000 x 7.145% = $1,999.60, which rounds up to $2,000. Choice B is the closest answer.

Question 8

Delta Freight Company purchases 10 delivery vans on April 4,2013,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 $100,000 before the depreciation deduction,and they elect out of bonus depreciation.What is Delta's maximum cost recovery deduction on the vans in 2013?

Accepted Answer

Since Delta uses the regular MACRS system and elects out of bonus depreciation, the maximum depreciation deduction in the first year would be 20% of the total cost using the half-year convention. Therefore, Delta's maximum cost recovery deduction on the vans in 2013 would be:

$366,000 x 20% = $73,200

However, since Delta's annual income before the depreciation deduction is only $100,000, they would not be able to take the full $73,200 deduction in 2013. The maximum amount they could deduct in 2013 would be limited to their taxable income before the depreciation deduction, which is $100,000. Therefore, Delta's maximum cost recovery deduction on the vans in 2013 would be $100,000.

Note: Choice C is the closest option to the actual answer, but the wording of the question is slightly misleading since it asks for the "maximum" deduction, which would be $73,200 if there were no income limits.

Question 9

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...

Question 10

A limitation exists on the annual amount of deductible depreciation for passenger automobiles.The limitation rules include which of the following?
I.If the automobile is used less than 100% for business,the annual limitation amount is reduced by multiplying it by the business-use percentage.
II.Section 179 expensing is available for passenger automobiles,but often is not advantageous.

Accepted Answer

Both statements are correct. Statement I accurately describes how the annual depreciation deduction for a passenger automobile is limited based on the percentage of business use. Statement II is correct in noting that while Section 179 expensing is available for passenger automobiles, its applicability is often limited by specific dollar caps, making it less advantageous in many cases.

Question 11

Chestnut Furniture Company purchases a delivery van on June 14,2013,at a cost of $30,000.The delivery has a 5-year MACRS life has an ADS recovery period of 5 years.What is Chestnut's minimum cost recovery deduction on the van in 2013?

Accepted Answer

The answer of Chestnut Furniture Company purchases a delivery van...

Question 12

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 13

Rand Company purchases and places into service a company automobile costing $40,000 in April 2012.What is the 2012 depreciation deduction on the auto?

Accepted Answer

The answer of Rand Company purchases and places into service...

Question 14

Jim places a new lift truck (7-year MACRS property)into service on January 16,2013.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 and elects out of bonus depreciation.How much depreciation may Jim deduct for 2013?

Accepted Answer

The answer of Jim places a new lift truck (7-year...

Question 15

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 16

During 2013,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 2013 depreciation deduction for purposes of the alternative minimum tax?

Accepted Answer

To calculate depreciation for AMT, we need to use AMT depreciation rates. The MACRS percentages for 7-year property are as follows:
Year 1: 14.29%
Year 2: 24.49%
Year 3: 17.49%
Year 4: 12.49%
Year 5: 8.93%
Year 6: 8.92%
Year 7: 8.93%
Using these percentages and the cost of the equipment, we can calculate the depreciation deduction for AMT purposes in 2013 as follows:
$40,000 x 14.29% = $5,714 x 50% (because the asset is placed in service after July 1) = $2,857. Therefore, the correct answer is B.

Question 17

During 2013,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 2013 depreciation deduction?

Accepted Answer

The answer of During 2013,Duncan Company purchases and places in...

Question 18

Wilson Corporation purchases a factory building on September 29,2013,for $4,000,000 (exclusive of the amount allocated to the land).It elects the alternative depreciation system (ADS).What is the 2013 depreciation deduction?

Accepted Answer

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

Question 19

Tucker Estates places an apartment building in service on November 22,2010.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2013.What is Tucker Estates' 2013 depreciation deduction on the property?

Accepted Answer

The answer of Tucker Estates places an apartment building in...

Question 20

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

The answer of Listed property rules include the following:
I.If listed...

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

Wellington Company purchases a new warehouse on August 24,1993,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2013 MACRS depreciation deduction?

Wellington Apartments purchases an apartment building on November 9,2013,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2013 MACRS depreciation deduction?

Daniel purchases 5-year class listed property (a computer) on March 2,2013,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2013 depreciation deduction.What is Daniel 's 2013 depreciation deduction?

In June 2012,Chase purchases a new car for $37,000.He uses the car 75% for business purposes.What is Chase's maximum depreciation deduction for the car in 2012?

Lindale Rentals places an apartment building in service on November 22,2013.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2013 depreciation deduction on the property?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2012?

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

Chestnut Furniture Company purchases a delivery van on June 14,2013,at a cost of $30,000.The delivery has a 5-year MACRS life has an ADS recovery period of 5 years.What is Chestnut's minimum cost recovery deduction on the van in 2013?

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?

Rand Company purchases and places into service a company automobile costing $40,000 in April 2012.What is the 2012 depreciation deduction on the auto?

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 2013,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 2013 depreciation deduction for purposes of the alternative minimum tax?

During 2013,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 2013 depreciation deduction?

Wilson Corporation purchases a factory building on September 29,2013,for $4,000,000 (exclusive of the amount allocated to the land) .It elects the alternative depreciation system (ADS) .What is the 2013 depreciation deduction?

Tucker Estates places an apartment building in service on November 22,2010.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2013.What is Tucker Estates' 2013 depreciation deduction on the property?