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

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Question 51

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Tan Company acquires a new machine (10-year property) on January 15, 2019, at a cost of $200,000. Tan also acquires another new machine (7-year property) on November 5, 2019, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first- year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2019.

A) $24,000
B) $25,716
C) $102,000
D) $132,858
E) None of these.

F) B) and D)
G) All of the above

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Question 52

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Orange Corporation begins business on April 2, 2019. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2019.

A) $0
B) $3,200
C) $4,267
D) $7,950

E) All of the above
F) None of the above

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Question 53

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Martin is a sole proprietor of a sandwich business. On March 4, 2019, he purchased and placed in service new seven-year class assets costing $580,000. Martin's business reports taxable income of $160,000 for the year before any deductions associated with the purchased assets. Martin also received $30,000 of interest income for the year, which is not related to the business. Martin wants his adjusted gross income for the year to be as low as possible. With this objective in mind, determine how Martin should recover the cost of the acquired assets.

The luxury auto cost recovery limits applies to all automobiles.

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

Rustin bought 7-year class property on May 15, 2019, for $1,248,000. Rustin elects § 179 and straight-line cost recovery, but not additional first-year depreciation.. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum cost recovery deduction Rustin can claim for 2019.

On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2019.

A major objective of MACRS is to:

On March 3, 2019, Sally purchased and placed in service a building costing $12,000,000. The building has 10 floors. The bottom three floors are rented out to businesses. The top seven floors are residential apartments. The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000. Determine Sally's cost recovery for the building in 2019.

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. $\begin{array}{ccc}&\text { Cost Recovery Allowed }&\text { Cost Recovery Allowable }\\ \text { Year 1 } & \$ 16,000 & \$ 8,000 \\\text { Year 2 } & 9,600 & 12,800 \\\text { Year 3 } & 5,760 & 7,680\end{array}$ If Tara sells the machine after three years for $15,000, how much gain should she recognize?

On January 15, 2019, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2019 of $500,000. The percentage depletion rate is 22%. Determine Dillon's depletion deduction for 2019.

Discuss the reason for the inclusion amount with respect to leased automobiles.

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Which of the following is not a characteristic of MACRS for property other than real estate?

A purchased trademark is a § 197 intangible.

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2019 at a cost of $100,000. On November 18, 2019, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo's total MACRS deduction for 2019?

All listed property is subject to the substantiation requirements of § 274.

Polly purchased a new hotel on July 20, 2019, for $6,000,000. On January 20, 2026, the building was sold. Determine the cost recovery deduction for the year of the sale.

Taxpayers may elect to use the straight-line method under MACRS for personalty.

Hans purchased a new passenger automobile on August 17, 2019, 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 2019.