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Exam 10: Property Acquisition and Cost Recovery

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Question 21

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Littman LLC placed in service on July 29, 2019, machinery and equipment (seven-year property) with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2019? (Use MACRS Table 1.)

A) Littman should take §179 expense equal to the maximum $1,000,000.
B) Littman should take no §179 expense.
C) Littman's §179 expense will be greater than $100,000.
D) Littman's §179 expense will be less than $100,000.
E) None of the choices are correct.

F) B) and C)
G) A) and D)

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Question 22

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Which of the following business assets is not depreciated?

A) Automobile.
B) Building.
C) Patent.
D) Machinery.
E) All of the assets are depreciated.

F) A) and D)
G) C) and E)

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Question 23

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Beth's business purchased only one asset during the current year (a full 12-month tax year) . On December 1 Beth placed in service machinery (seven-year property) with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.)

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

Tax depreciation is currently calculated under what system?

If the business-use percentage for listed property falls below 50 percent, the only adjustment is that all future depreciation must be calculated under the straight-line method.

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

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

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciation percentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Which of the following assets is not eligible for bonus depreciation?

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation deduction during the current year. (Use MACRS Table 5.)

Potomac LLC purchased an automobile for $30,000 on August 5, 2019. What is Potomac's depreciation deduction for 2019? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.)

Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.) (Use MACRS Table 1.)

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10^th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

Tasha LLC purchased furniture (seven-year property) on April 20 for $20,000 and used the half-year convention to depreciate it. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense. (Use MACRS Table 2 and Exhibit 10-6.) (Round final answer to the nearest whole number.)

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.