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

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Question 61

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Orange Corporation begins business on April 2,2012.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195,determine the total amount that Orange may deduct in 2012.

A) $1,000.
B) $2,650.
C) $3,650.
D) $5,000.
E) None of the above.

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

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Question 62

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Property used for the production of income is not eligible for § 179 expensing.

A) True
B) False

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Question 63

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In 2011,Gail had a § 179 deduction carryover of $25,000.In 2012,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2012 is $142,000.Determine Gail's § 179 deduction for 2012.

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Rick purchased a uranium interest for $10,000,000 on January 3,2012,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2012 and 7,000 units were sold in 2012.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 2012.

The § 179 deduction can exceed $139,000 in 2012 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

If an automobile is placed in service in 2012,the limitation for cost recovery in 2014 will be based on the cost recovery limits for the year 2012.

On July 17,2012,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2013,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2013.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

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

Howard's business is raising and harvesting peaches.On March 10,2012,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.If eligible,Howard takes additional first-year depreciation.Determine the cost recovery deduction for 2012.

The basis of cost recovery property must be reduced by the cost recovery allowed.

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

The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 20 years.

On March 3,2012,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 2012.

On June 1,2012,Red Corporation purchased an existing business.With respect to the acquired assets of the business,Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2012 for the patent.