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

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Question 41

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A taxpayer must use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.

A) True
B) False

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Question 42

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In 2018, Gail had a § 179 deduction carryover of $30,000. In 2019, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2019 is $140,000. Determine Gail's § 179 deduction for 2019.

A) $25,000
B) $115,000
C) $130,000
D) $140,000

E) A) and B)
F) A) and C)

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Question 43

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Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

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

Motel buildings have a cost recovery period of 27.5 years.

Maple Company purchases new equipment (7-year MACRS property) on January 10, 2019, at a cost of $430,000. Maple also purchases new machines (5-year MACRS property) on July 19, 2019 at a cost of $290,000. Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple's total MACRS deduction for 2019?

For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000 even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

The § 179 deduction can exceed $1,020,000 in 2019 if the taxpayer had a § 179 amount that exceeded the taxable income limitation in the prior year.

Rod paid $1,950,000 for a new warehouse on April 14, 2019. He sold the warehouse on September 29, 2024. Determine the cost recovery deduction for 2019 and 2024.

The cost recovery period for three-year class property is four years.

Bhaskar purchased a new factory building and land on September 10, 2019, for $3,700,000. ($500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system (ADS) . Determine the cost recovery deduction for 2020.

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

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Tom purchased and placed in service used office furniture on January 3, 2019, for $40,000. Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant used the same depreciation amounts when filing Tom's income tax returns. On January 10, 2024, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.

On January 1, 2019, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million was allocated to goodwill. What is SymboNet's amortization deduction related to the goodwill for 2019?

On July 15, 2019, Mavis paid $275,000 for improvements on a commercial building she owns. Determine the maximum total cost recovery from the improvements in 2019.

James purchased a new business asset (three-year personalty) on July 23, 2019, at a cost of $40,000. James takes additional first-year depreciation but does not elect Section 179 expense on the asset. Determine the cost recovery deduction for 2019.

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

On July 10, 2019, Ariff places in service a new SUV that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2019, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation.