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

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Question 1

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Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.

A) True
B) False

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Question 2

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Augie purchased one new asset during the year (five-year property) on November 10, 2017, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the total cost recovery deduction with respect to the asset for 2017.

A) $30,500
B) $320,250
C) $510,000
D) $588,750
E) None of the above

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

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Question 3

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Norm purchases a new sports utility vehicle (SUV) on October 12, 2017, 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 2017. Compute the maximum deduction with respect to the SUV for 2017. Norm does not take additional first-year depreciation.

Alice purchased office furniture on September 20, 2016, for $100,000. On October 10, 2016, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2017. Alice did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2017. ​

Sid bought a new $1,310,000 seven-year class asset on August 2, 2017. On December 2, 2017, he purchased $800,000 of used five-year class assets. If Sid elects § 179 and takes additional first-year depreciation, what is the maximum cost recovery deduction for these purchases for 2017?

Hans purchased a new passenger automobile on August 17, 2017, 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 2017.

Discuss the difference between the half-year convention and the mid-quarter convention.

On July 10, 2017, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2017, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation.

Under the MACRS straight-line election for personalty, only the half-year convention is applicable.

The luxury auto cost recovery limits applies to all automobiles.

For real property, the ADS convention is the mid-month convention.

On April 5, 2017, Orange Corporation purchased, and placed in service, seven-year class assets costing $540,000 and five-year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation. Assume taxable income is not a limitation. Determine Orange Corporation's cost recovery with respect to the assets for 2017.

Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.

A used $35,000 automobile that is used 100% for business is placed in service in 2017. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

In 2016, Gail had a § 179 deduction carryover of $30,000. In 2017, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2017 is $140,000. Determine Gail's § 179 deduction for 2017.

Nora purchased a new automobile on July 20, 2016, for $29,000. The car was used 60% for business and 40% for personal use. In 2017, the car was used 30% for business and 70% for personal use. Nora elects not to take additional first-year depreciation. Determine the cost recovery recapture and the cost recovery deduction for 2017.

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

MACRS depreciation is used to compute earnings and profits.

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2017, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

On May 30, 2016, Jane purchased a factory building to use for her business. In August 2017, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2017.