Question 1

Wellington Apartments purchases an apartment building on November 9, 2018, for $1,000,000 (exclusive of the cost allocated to the land). What is the 2018 MACRS depreciation deduction?

Accepted Answer

The answer of Wellington Apartments purchases an apartment building on...

Question 2

During 2018, 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 2018 depreciation deduction for purposes of the alternative minimum tax?

Accepted Answer

For the alternative minimum tax (AMT) purposes, the 7-year MACRS property is depreciated under the 150% declining balance method, switching to straight-line when advantageous. The first-year depreciation rate for 7-year property under this method is 14.29%, so the depreciation deduction is $40,000 * 14.29% = $5,716, rounded to the nearest dollar is $5,714.

Question 3

Delta Freight Company purchases 10 delivery vans on April 4, 2018, at a total cost of $366,000. In prior years, Delta used 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 2018?

Accepted Answer

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

Question 4

Mike purchases 5-year class listed 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 5-year class listed property for...

Question 5

Chestnut Furniture Company purchases a delivery van on June 14, 2018, 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 2018?

Accepted Answer

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

Question 6

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 2018. It was the only piece of depreciable property placed in service during 2018. The paper shredder is 7-year MACRS property, the Section 179 election to expense was not exercised and bonus depreciation was not elected. What is Mountain View's 2018 depreciation deduction on the paper shredder?

Accepted Answer

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

Question 7

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2018?

Accepted Answer

The amount of the depreciation deduction for automobiles placed in service in 2018 can exceed $10,000 due to the Tax Cuts and Jobs Act, which increased limits on luxury automobile depreciation. The first-year limit is $18,000 when bonus depreciation is applied.

Question 8

On July 17, 2018, Elise purchases office furniture (7-year property) costing $50,000 for use in her business. She wishes to use the Section 179 election but does not elect to use bonus depreciation. Her taxable income before the Section 179 depreciation deduction is $25,000. What is the maximum total cost recovery deduction Elise can take for the current year?

Accepted Answer

The answer of On July 17, 2018, Elise purchases office...

Question 9

Lindale Rentals places an apartment building in service on November 22, 2018. The building's depreciable basis is $3,300,000. What is Lindale Homes' 2018 depreciation deduction on the property?

Accepted Answer

To calculate the 2018 depreciation, we need to use the Modified Accelerated Cost Recovery System (MACRS) with a 27.5-year recovery period for residential rental property.

The depreciation deduction for 2018 is calculated as:
Depreciation = (Cost basis / Recovery period) x Time factor
Time factor for 2018 = 3.636% (from MACRS table)

Depreciation = ($3,300,000 / 27.5) x 3.636% = $15,015

Therefore, Lindale Rentals' 2018 depreciation deduction for the apartment building is $15,015 (option B).

Question 10

Wellington Company purchases a new warehouse on August 24, 2006, for $1,000,000 (exclusive of the cost allocated to the land). What is the 2018 MACRS depreciation deduction?

Accepted Answer

The answer of Wellington Company purchases a new warehouse on...

Question 11

Greenville Floral places a new tractor (7-year MACRS) into service on January 8, 2018. 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 2018. What is Greenville Floral's cost recovery for 2018?

Accepted Answer

To minimize the amount of depreciation deductible in 2018, Greenville Floral should choose the straight-line method. The MACRS table for 7-year property with a mid-month convention and a recovery year of 7 is:

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 the straight-line method, the annual depreciation expense is $4,000 (28,000/7 years). However, since this is the only business asset placed into service during the year and the mid-month convention is used, the half-year convention applies. Therefore, the first-year depreciation deduction is half of the first-year annual depreciation expense, or $2,000.

Therefore, the cost recovery for 2018 is $2,000. Option B is the correct answer.

Question 12

On August 3, 2018, 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, elects not to use bonus depreciation and makes the election to use the straight-line method over the MACRS recovery period. What is Yang's 2018 cost recovery deduction?

Accepted Answer

Under the MACRS system, 7-year property placed in service during the tax year is depreciated over a 7-year recovery period, but when the straight-line method is elected, the property is depreciated evenly over its recovery period. For the first year, the deduction is calculated by dividing the cost by the recovery period and then prorating for the portion of the year the asset was in service. Since the asset was placed in service in August, it is considered in service for 4.5 months of the year (August through December). The annual straight-line depreciation would be $21,000 / 7 = $3,000. However, for the first year, only a portion of the year's depreciation is allowed, calculated as $3,000 * (4.5/12) = $1,125. However, none of the provided answers exactly match this calculation, suggesting a need for clarification or a possible error in the question or answer choices. Given the options, $1,500 (B) is the closest to the expected prorated amount, but it does not accurately reflect the correct calculation based on the information provided. This suggests a potential misunderstanding or simplification in the question's assumptions about how depreciation is calculated for partial years under the straight-line method when electing out of bonus depreciation and Section 179.

Question 13

During 2018, Duncan 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 his minimum 2018 depreciation deduction?

Accepted Answer

The answer of During 2018, Duncan purchases and places in...

Question 14

Jim places a new lift truck (7-year MACRS property) into service on January 16, 2018. 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 2018?

Accepted Answer

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

Question 15

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 passenger automobiles and trucks.
​

Accepted Answer

Statements II, III, and IV are correct. Statement I is incorrect because even if listed property is not predominantly used in the taxpayer's business (less than 50%), the business-use portion can still be depreciated, but under the straight-line method rather than accelerated methods.

Question 16

Daniel purchases 5-year class listed property on March 2, 2018, for $30,000. It is used 75% for business, and the remainder for personal use. Daniel wishes to maximize his 2018 depreciation deduction. What is Daniel 's 2018 depreciation deduction?

Accepted Answer

To calculate the depreciation deduction for a 5-year class listed property, we use the Modified Accelerated Cost Recovery System (MACRS) depreciation method. According to MACRS, the property is depreciated over a period of 5 years using the double-declining balance method, which means the depreciation percentage is 40% (200% / 5 years) for the first year.

Since Daniel uses the property 75% for business, he can deduct 75% of the depreciation cost as a business expense. So the calculation for the depreciation deduction is as follows:
Depreciation deduction = Cost of the property x Depreciation percentage x % of business use
Depreciation deduction = $30,000 x 40% x 75% = $4,500

Therefore, Daniel's 2018 depreciation deduction is $4,500. Option D is the correct answer.

Question 17

Mary Wilson purchases a factory building on September 29, 2018, for $4,000,000 (exclusive of the amount allocated to the land). It elects the alternative depreciation system (ADS). What is the 2018 depreciation deduction?

Accepted Answer

Under the alternative depreciation system (ADS), a factory building is depreciated over a 40-year straight-line period. Since the building was purchased on September 29, 2018, Mary Wilson can only claim depreciation for the part of the year that she owned the building. For 2018, this amounts to 3 months (October, November, December). The annual depreciation for the building is $4,000,000 / 40 = $100,000. For 3 months, the depreciation would be $100,000 * (3/12) = $25,000. However, the correct answer is not listed directly, indicating a possible mistake in the calculation or the choices provided. Given the options, $29,167 (A) is the closest to any reasonable calculation error, but it should be noted that this does not align with the standard calculation method described.

Question 18

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 Alternative Depreciation System (ADS) is often used to avoid the alternative minimum tax and to spread deductions over a longer period, which can be beneficial during low income periods.

Question 19

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 20

Tucker Estates places an apartment building in service on November 22, 2014. The building's depreciable basis is $3,300,000. Tucker Estates sells the building on March 5, 2018. What is Tucker Estates' 2018 depreciation deduction on the property?

Accepted Answer

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

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

Wellington Apartments purchases an apartment building on November 9, 2018, for $1,000,000 (exclusive of the cost allocated to the land) . What is the 2018 MACRS depreciation deduction?

During 2018, 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 2018 depreciation deduction for purposes of the alternative minimum tax?

Mike purchases 5-year class listed 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?

Chestnut Furniture Company purchases a delivery van on June 14, 2018, 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 2018?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2018?

Lindale Rentals places an apartment building in service on November 22, 2018. The building's depreciable basis is $3,300,000. What is Lindale Homes' 2018 depreciation deduction on the property?

Wellington Company purchases a new warehouse on August 24, 2006, for $1,000,000 (exclusive of the cost allocated to the land) . What is the 2018 MACRS depreciation deduction?

During 2018, Duncan 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 his minimum 2018 depreciation deduction?

Jim places a new lift truck (7-year MACRS property) into service on January 16, 2018. 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 2018?

Daniel purchases 5-year class listed property on March 2, 2018, for $30,000. It is used 75% for business, and the remainder for personal use. Daniel wishes to maximize his 2018 depreciation deduction. What is Daniel 's 2018 depreciation deduction?

Mary Wilson purchases a factory building on September 29, 2018, for $4,000,000 (exclusive of the amount allocated to the land) . It elects the alternative depreciation system (ADS) . What is the 2018 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.

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, 2014. The building's depreciable basis is $3,300,000. Tucker Estates sells the building on March 5, 2018. What is Tucker Estates' 2018 depreciation deduction on the property?

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

Wellington Apartments purchases an apartment building on November 9, 2018, for $1,000,000 (exclusive of the cost allocated to the land) . What is the 2018 MACRS depreciation deduction?

During 2018, 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 2018 depreciation deduction for purposes of the alternative minimum tax?

Mike purchases 5-year class listed 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?

Chestnut Furniture Company purchases a delivery van on June 14, 2018, 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 2018?

Which of the following correctly describe(s) cost recovery of automobiles placed in service in 2018?

Lindale Rentals places an apartment building in service on November 22, 2018. The building's depreciable basis is $3,300,000. What is Lindale Homes' 2018 depreciation deduction on the property?

Wellington Company purchases a new warehouse on August 24, 2006, for $1,000,000 (exclusive of the cost allocated to the land) . What is the 2018 MACRS depreciation deduction?

During 2018, Duncan 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 his minimum 2018 depreciation deduction?

Jim places a new lift truck (7-year MACRS property) into service on January 16, 2018. 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 2018?

Daniel purchases 5-year class listed property on March 2, 2018, for $30,000. It is used 75% for business, and the remainder for personal use. Daniel wishes to maximize his 2018 depreciation deduction. What is Daniel 's 2018 depreciation deduction?

Mary Wilson purchases a factory building on September 29, 2018, for $4,000,000 (exclusive of the amount allocated to the land) . It elects the alternative depreciation system (ADS) . What is the 2018 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. ​

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, 2014. The building's depreciable basis is $3,300,000. Tucker Estates sells the building on March 5, 2018. What is Tucker Estates' 2018 depreciation deduction on the property?

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.