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

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Question 51

True/False

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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.

A) True
B) False

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Question 52

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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?

A) $27,145.
B) $30,000.
C) $36,785.
D) $150,000.

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

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Question 53

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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?

Cora purchased a hotel building on May 17, 2019, for $3,000,000.Determine the cost recovery deduction for 2020.

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.

Doug purchased a new factory building on January 15, 1991, for $400,000.On March 1, 2019, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

New and used personal property placed in service in 2019 and used in a trade or business qualifies for additional first-year depreciation.

Intangible drilling costs are capitalized and recovered through depletion.

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

A purchased trademark is a § 197 intangible.

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.

On August 20, 2019, May placed in service a building for her business.On November 28, 2019, she paid $80,000 for improvements to the building.What is May's cost recovery deduction for the building improvements in 2019?

Under MACRS, equipment falling in the 7-year MACRS class will be cost recovered over seven tax years.

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

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

On June 1, 2019, Gabriella purchased a computer and peripheral equipment (five-year property) for $25,000.She used the assets 40% for business, 50% for the production of income, and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for 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. $\begin{array} { l c c } & \begin{array} { c } \text { Cost Recovery Allow ed Cost } \\\text { Recovery Allow able }\end{array} \\\text { Year 1 } & \$ 16,000 & \$ 8,000 \\\text { Year 2 } & 9,600 & 12,800 \\\text { Year 3 } & 5,760 & 7,680\end{array}$ If Tara sells the machine after three years for $15,000, how much gain should she recognize?

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.

If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight-line depreciation to slow down the cost recovery.

Norm purchases a new SUV on October 12, 2019, for $60,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2019.Compute the maximum deduction with respect to the SUV for 2019.Norm does not take additional first-year depreciation.