Question 1

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...

Question 2

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 elected out of bonus depreciation, the maximum cost recovery deduction for the first year is calculated by using the regular MACRS system with half-year convention. The 5-year MACRS property has a depreciation rate of 20% in the first year. Therefore, the total maximum cost recovery deduction for the 10 delivery vans for the first year is $366,000 x 20% = $73,200. However, since Delta's annual income before the depreciation deduction is only $100,000, their maximum deductible amount is limited to $100,000. Therefore, the answer is $100,000.

Question 3

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

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 4

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 5

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 6

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 7

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 8

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 building was sold on March 5, 2013, so the depreciation period is from January 1, 2013, to March 5, 2013, a total of 63 days. The annual depreciation is $3,300,000 / 39 = $84,615. The depreciation for 63 days is $84,615 * 63 / 365 = $14,998.

Question 9

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

First, we need to determine the basis amount for the car which would be $37,000 (the purchase price).

Next, we need to determine the business use percentage which is 75%.

Using MACRS depreciation, the car would fall under the 5-year property class.

For 5-year property, the maximum depreciation deduction for the first year (in 2012) using the half-year convention is 20% of the basis amount.

So,

Depreciation deduction = 20% x $37,000 x 75% = $ 5,550

Therefore, the correct choice is D.

Question 10

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 the year of the property placed in service should be calculated using the mid-month convention, which assumes that the property was placed in service in the middle of the month. In this case, the building was placed in service on November 22, 2013, which means that only one month of depreciation should be taken for 2013.

To calculate the monthly depreciation, we need to determine the property's recovery period and depreciation method. Residential rental property like an apartment building is generally depreciated over 27.5 years using the straight-line method. Using these rates, we can calculate the monthly depreciation as:
($3,300,000 / 27.5 years) / 12 months = $10,015.27/month

Since the property was placed in service on November 22, 2013, only one month of depreciation is allowed for that year, which gives us:
$10,015.27 x 1 month = $10,015.27

Therefore, the correct answer is B) $15,015.

Question 11

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

Accepted Answer

The amount of the depreciation deduction for automobiles placed in service in 2012 cannot exceed $11,160.

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

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 14

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 15

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

To minimize the amount of depreciation deductible in 2013, Greenville Floral should use the MACRS depreciation method and select the method that results in the smallest deduction for the first year. Based on the MACRS depreciation table, the 7-year property has a depreciation rate of 14.29% for the first year. Therefore, the cost recovery for 2013 would be:

$28,000 x 14.29% = $3,997.20

However, since MACRS depreciation must be rounded to the nearest dollar, the actual cost recovery for 2013 would be $4,000.

Therefore, the best choice is B.

Question 16

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 17

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 18

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

The MACRS depreciation for 7-year property in the first year is 14.29% (double declining balance method). Therefore, the depreciation deduction for AMT purposes in 2013 is $40,000 x 14.29% = $5,714. However, the amount of the deduction is limited to the excess of the AMT depreciation over the regular tax depreciation, which is $5,714 - ($40,000 x 10.71%) = $2,857. Thus, the correct answer is B.

Question 19

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 MACRS recovery period for a warehouse is 39 years. Using the straight-line method, the annual depreciation deduction would be (1,000,000/39) = $25,641. However, since the property was purchased in August 1993, only a half-year of depreciation is allowed for that year. Therefore, for 2013, the depreciation deduction is (25,641 x 3.64%) = $931. Adding up the half-year depreciation deductions for each year, we get a total of $31,740. So, the correct answer is C.

Question 20

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...

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

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?

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?

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?

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?

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?

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?

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 would not be considered to be Listed Property for depreciation purposes?

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?

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?

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?

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?

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.