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

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Question 31

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Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

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Goodwill is a capital asset and any gain...

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Question 32

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Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

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B) False

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Question 33

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A used $35,000 automobile that is used 100% for business is placed in service in 2018. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

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

On March 1, 2018, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2018, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

The § 179 deduction can exceed $1,000,000 in 2018 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

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

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

Which of the following depreciation conventions are not used under MACRS?

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

Lindsey purchased a uranium interest for $10,000,000 on January 3, 2018, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018. Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000. Determine her depletion deduction for 2018.

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Intangible drilling costs must be capitalized and recovered through depletion.

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.

Property which is classified as personalty may be depreciated.

Carlos purchased an apartment building on November 16, 2018, for $3,000,000. Determine the cost recovery for 2018.

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?