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Exam 8: Depreciation, cost Recovery, amortization, and Depletion

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Question 21

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A purchased trademark is a § 197 intangible.

A) True
B) False

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Question 22

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

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B) False

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Question 23

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On August 20,2013,May signed a 10-year lease on a building for her business.On November 28,2014,May paid $80,000 for leasehold improvements to the building.She does not take additional first-year depreciation (if available)and does not elect § 179 expensing.What is May's cost recovery deduction for the improvement in 2014?

Doug purchased a new factory building on January 15,1989,for $400,000.On March 1,2014,the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight- line method.

If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on all property,regardless of the class life.

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2014.

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

The key date for calculating cost recovery is the date the asset is placed in service.

On June 1,2014,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car. ) James does not take additional first-year depreciation (if available) .Determine the cost recovery deduction for 2014.

Rick purchased a uranium interest for $10,000,000 on January 3,2014,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2013 and 7,000 units were sold in 2014.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2014.

Rustin bought used 7-year class property on May 15,2014,for $72,000.Rustin elects § 179 and straight­line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Determine the maximum write-off Rustin can take in 2014.

Jim acquires a new seven-year class asset on September 20,2013,for $80,000.He placed the asset in service on October 5,2013.He does not elect to expense any of the asset under § 179 or elect straight­line,cost recovery.He takes additional first-year depreciation.He sells the asset on August 25,2014.This is the only asset he acquires in 2013.Determine Jim's cost recovery in 2013 and 2014.

Bhaskar purchased a new factory building on September 10,2014,for $3,700,000.Five hundred thousand of the purchase price was allocated to the land.He elected the alternative depreciation system (ADS) .Determine the cost recovery deduction for 2015.

Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

When lessor owned leasehold improvements are abandoned because of the termination of the lease,a loss can be taken for the unrecovered basis.

Diane purchased a factory building on April 15,1994,for $5,000,000.She sells the factory building on February 2,2014.Determine the cost recovery deduction for the year of the sale.

On May 30,2014,Jane signed a 20-year lease on a factory building to use for her business.The lease begins on June 1,2014.In August 2014,Jane paid $300,000 for leasehold improvements to the building.Determine Jane's total deduction with respect to the leasehold improvements for 2014.

If more than 40% of the value of property,other than real property,is placed in service during the last quarter,all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

On January 15,2014,Vern 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.Vern incurred expenses during 2014 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2014.

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