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

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Question 21

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

A) True
B) False

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Question 22

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If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight-line depreciation to slow down the cost recovery.

A) True
B) False

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Question 23

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On January 1, 2018, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million was allocated to goodwill. What is SymboNet's amortization deduction related to the goodwill for 2018?

MACRS depreciation is used to compute earnings and profits.

On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2019.

On May 30, 2017, Jane purchased a factory building to use for her business. In August 2018, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2018.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

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 2018.

The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2018 for $900,000. What is the maximum cost recovery deduction it may take for 2018?

Land improvements are generally not eligible for cost recovery.

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

Which of the following is not a characteristic of MACRS for property other than real estate?

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.

Pat purchased a used five-year class asset on March 15, 2018, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2018 for earnings and profits purposes.

Cora purchased a hotel building on May 17, 2018, for $3,000,000. Determine the cost recovery deduction for 2019.

On June 1, 2018, Gabriella purchased a computer and peripheral equipment five-year property) for $25,000. She used the assets 40% for business, 50% for the production of income, and 10% for personal use. These are the only assets Gabriella purchased during the current year. Determine her total cost recovery deduction for the current year.

Hazel purchased a new business asset five-year asset) on September 30, 2018, at a cost of $100,000. On October 4, 2018, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2018. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2019, Hazel sold the asset. Determine the cost recovery for 2019 for the asset.

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000, even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

If an automobile is placed in service in 2018, the limitation for cost recovery in 2020 will be based on the cost recovery limits for the year 2018.