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Exam 8: Depreciation, cost Recovery, amortization, and Depletion

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Question 61

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On June 1,2014,Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table is $241,determine Norm's inclusion amount.

A) $0
B) $241
C) $907
D) $1,687
E) None of these

F) B) and D)
G) A) and E)

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Question 62

Multiple Choice

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On June 1,2014,Red Corporation purchased an existing business.With respect to the acquired assets of the business,Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2014 for the patent.

A) $0
B) $1,667
C) $11,667
D) $35,000
E) None of these

F) None of the above
G) A) and E)

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Question 63

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The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Bonnie purchased a new business asset (five-year property) on March 10,2013,at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20,2013,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight­line cost recovery.Bonnie takes additional first-year depreciation.Determine the cost recovery deduction for 2013 for these assets.

Goodwill associated with the acquisition of a business cannot be amortized.

Land improvements are generally not eligible for cost recovery.

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 cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Tom purchased and placed in service used office furniture on January 3,2014,for $40,000.Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes.The accountant also used the same depreciation amounts when filing Tom's income tax returns.On January 10,2019,Tom sold the furniture.Determine the tax basis of the furniture at the time of the sale.

Property used for the production of income is not eligible for § 179 expensing.

Tan Company acquires a new machine (ten-year property) on January 15,2014,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2014,at a cost of $40,000.No election is made to use the straight­line method.The company does not make the § 179 election and elects to not take additional first-year depreciation if available.Determine the total deductions in calculating taxable income related to the machines for 2014.

On June 1 of the current year,Tab converted a machine from personal use to rental property.At the time of the conversion,the machine was worth $90,000.Five years ago Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

Hans purchased a new passenger automobile on August 17,2014,for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2014.

The factor for determining the cost recovery for eligible real estate under MACRS,in the year of disposition,is taken from the month of the disposition.

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.