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Exam 2: Property Acquisition and Cost Recovery

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Question 31

True/False

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The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

A) True
B) False

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Question 32

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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 E)
G) A) and C)

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Question 33

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Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $956,250 for extraction rights. A geologist estimates that Santa Fe will recover 11,250 pounds of turquoise. During the current year, Santa Fe extracted 3,375 pounds of turquoise, which it sold for $608,000. What is Santa Fe's cost depletion deduction for the current year?

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,450,000 on June 6, 2020. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation) .

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15 ^th and the purchase price was $66,000. If the copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

Cost depletion is available to all natural resource producers.

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Jasmine started a new business in the current year. She incurred $22,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

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.)

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?

The mid-month convention applies to real property in the year of acquisition and disposition.

Which of the following assets is eligible for §179 expensing?

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2020, machinery and equipment (seven-year property) with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation).

Used property is eligible for bonus depreciation.

Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year) .On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) .

The MACRS recovery period for automobiles and computers is:

Lax LLC purchased only one asset during the current year (a full 12-month tax year) . On August 26 Lax placed in service computer equipment (five-year property) with a basis of $32,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) .

Deirdre's business purchased two assets during the current year (a full 12-month tax year) .On January 20 Deirdre placed in service computer equipment (five-year property) with a basis of $15,000 andon September 1 placed in service machinery (seven-year property) with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Half-Year ConventionTable.) (Round final answer to the nearest whole number.)

Gessner LLC patented a process it developed in the current year. The patent is expected to create benefits for Gessner over a 10-year period. The patent was issued on April 15 ^th and the legal costs associated with the patent were $43,000. In addition, Gessner had unamortized research expenditures of $15,000 related to the process. What is the total amortization amount Gessner may deduct during the current year?