Question 1

Delta Freight Company purchases 10 delivery vans on April 4,2016,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 2016?

Accepted Answer

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

Question 2

Lindale Rentals places an apartment building in service on November 22,2016.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2016 depreciation deduction on the property?

Accepted Answer

According to IRS rules, the depreciation deduction for a residential rental property is calculated using the straight-line method over 27.5 years, which means the annual depreciation deduction is $3,300,000 / 27.5 = $120,000. However, since the property was placed in service on November 22, 2016, Lindale Rentals is only eligible to claim depreciation for the portion of the year the property was in service.

The calculation for the 2016 depreciation deduction would be as follows:

Number of days the property was in service in 2016 = 40 (from November 22 to December 31)
Depreciation deduction for 2016 = ($120,000 / 365) x 40 = $13,150

Therefore, the best choice is B, $15,015, which is the closest answer option to the calculated value of $13,150.

Question 3

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 4

Tucker Estates places an apartment building in service on November 22,2012.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2016.What is Tucker Estates' 2016 depreciation deduction on the property?

Accepted Answer

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

Question 5

Which of the following correctly describe(s)cost recovery of automobiles placed in service in 2015?

Accepted Answer

The amount of the depreciation deduction for automobiles placed in service in 2015 cannot exceed $11,160. This limit applies regardless of whether bonus depreciation is taken or not. A, B, and D do not accurately describe the cost recovery rules for automobiles placed in service in 2015.

Question 6

Chestnut Furniture Company purchases a delivery van on June 14,2016,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 2016?

Accepted Answer

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

Question 7

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 2016 MACRS depreciation deduction?

Accepted Answer

The warehouse is a nonresidential real property, which falls under the MACRS category of 39 years. The applicable MACRS table for mid-month convention and 39-year property shows a depreciation percentage of 2.564% for the 11th year of the property's life. Using this percentage on the depreciable basis ($1,000,000), we get a depreciation deduction of $25,640 for 2016. Therefore, option B is the correct answer.

Question 8

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

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I.If listed...

Question 9

Daniel purchases 5-year class listed property (a computer)on March 2,2016,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2016 depreciation deduction.What is Daniel 's 2016 depreciation deduction?

Accepted Answer

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Question 10

On July 17,2016,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

Elise can use the Section 179 election to immediately expense the full cost of the furniture. However, the maximum amount she can expense for 2016 is limited to her taxable income before the depreciation deduction, which is $25,000.

Therefore, Elise can expense $25,000 under Section 179 and take bonus depreciation of 50% on the remaining $25,000. This means she can take a total cost recovery deduction of $25,000 + ($25,000 x 50%) = $37,500.

However, there is also a maximum overall limit of $500,000 for Section 179 expenses in 2016. Since Elise's furniture expense is only $50,000, she is well below this limit and can take the full deduction of $37,500.

Therefore, the maximum total cost recovery deduction Elise can take for the current year is $37,500, making choice D the correct answer.

Question 11

Wilson Corporation purchases a factory building on September 29,2016,for $4,000,000 (exclusive of the amount allocated to the land).It elects the alternative depreciation system (ADS).What is the 2016 depreciation deduction?

Accepted Answer

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

Question 12

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 13

During 2016,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 2016 depreciation deduction for purposes of the alternative minimum tax?

Accepted Answer

For the alternative minimum tax, the depreciation deduction for 7-year MACRS property in the first year is calculated using the 150% declining balance method, which results in a deduction of $2,857.

Question 14

On August 3,2016,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 2016 cost recovery deduction?

Accepted Answer

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

Question 15

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 2016.It was the only piece of depreciable property placed in service during 2016.The paper shredder is 7-year MACRS property,the Section 179 election to expense was not exercised.What is Mountain View's 2016 depreciation deduction on the paper shredder?

Accepted Answer

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

Question 16

During 2016,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 2016 depreciation deduction?

Accepted Answer

The answer of During 2016,Duncan Company purchases and places in...

Question 17

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 18

Jim places a new lift truck (7-year MACRS property)into service on January 16,2016.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 2016?

Accepted Answer

Under the 7-year MACRS property, the first-year depreciation rate is 14.29%. Therefore, Jim can deduct 14.29% of $30,000, which is $4,287.

Question 19

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

Since Greenville Floral wants to minimize the amount of depreciation deductible in 2016, they should use the straight-line method which results in the same amount of depreciation expense each year. The 7-year MACRS schedule shows a depreciation rate of 14.29% for the first year.

Using the straight-line method, the annual depreciation expense is: 
Cost of tractor / Number of years of depreciation = $28,000 / 7 = $4,000 per year

However, since the tractor was placed in service on January 8th, it is only eligible for 11.52 (365/7/12) months of depreciation in 2016.

Cost recovery for 2016 = Annual depreciation expense x Months of depreciation / 12 = $4,000 x 11.52 / 12 = $383.04 per month x 11 months (Jan-Nov) = $4,213.44
Rounded to the nearest dollar, the answer is B) $2,000.

Question 20

Wellington Apartments purchases an apartment building on November 9,2016,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2016 MACRS depreciation deduction?

Accepted Answer

According to MACRS, the depreciation period for residential real estate is 27.5 years. Since the purchase was made on November 9, 2016, only 1.5 months of depreciation can be taken in 2016. Using the straight-line method, the depreciation deduction for 2016 would be: 
$1,000,000/27.5 x 1.5/12 = $4,550. Therefore, the correct answer is B.

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

Lindale Rentals places an apartment building in service on November 22,2016.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2016 depreciation deduction on the property?

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

Tucker Estates places an apartment building in service on November 22,2012.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2016.What is Tucker Estates' 2016 depreciation deduction on the property?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2015?

Chestnut Furniture Company purchases a delivery van on June 14,2016,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 2016?

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 2016 MACRS depreciation deduction?

Daniel purchases 5-year class listed property (a computer) on March 2,2016,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2016 depreciation deduction.What is Daniel 's 2016 depreciation deduction?

On July 17,2016,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?

Wilson Corporation purchases a factory building on September 29,2016,for $4,000,000 (exclusive of the amount allocated to the land) .It elects the alternative depreciation system (ADS) .What is the 2016 depreciation deduction?

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 2016,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 2016 depreciation deduction for purposes of the alternative minimum tax?

On August 3,2016,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 2016 cost recovery deduction?

During 2016,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 2016 depreciation deduction?

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?

Jim places a new lift truck (7-year MACRS property) into service on January 16,2016.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 2016?

Wellington Apartments purchases an apartment building on November 9,2016,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2016 MACRS depreciation deduction?

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

Lindale Rentals places an apartment building in service on November 22,2016.The building's depreciable basis is $3,300,000.What is Lindale Homes' 2016 depreciation deduction on the property?

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

Tucker Estates places an apartment building in service on November 22,2012.The building's depreciable basis is $3,300,000.Tucker Estates sells the building on March 5,2016.What is Tucker Estates' 2016 depreciation deduction on the property?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2015?

Chestnut Furniture Company purchases a delivery van on June 14,2016,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 2016?

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 2016 MACRS depreciation deduction?

Daniel purchases 5-year class listed property (a computer) on March 2,2016,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2016 depreciation deduction.What is Daniel 's 2016 depreciation deduction?

Wilson Corporation purchases a factory building on September 29,2016,for $4,000,000 (exclusive of the amount allocated to the land) .It elects the alternative depreciation system (ADS) .What is the 2016 depreciation deduction?

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 2016,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 2016 depreciation deduction for purposes of the alternative minimum tax?

On August 3,2016,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 2016 cost recovery deduction?

During 2016,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 2016 depreciation deduction?

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?

Jim places a new lift truck (7-year MACRS property) into service on January 16,2016.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 2016?

Wellington Apartments purchases an apartment building on November 9,2016,for $1,000,000 (exclusive of the cost allocated to the land) .What is the 2016 MACRS depreciation deduction?

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.