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Exam 8: Depreciation Cost Recovery Amortization and Depletion

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Question 41

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The § 179 deduction can exceed $500,000 in 2016 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

A) True
B) False

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Question 42

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Discuss the requirements in order for startup expenditures to be amortized under § 195.

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The expenditures must meet two requireme...

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Question 43

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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.

On June 1,2016,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 2016.

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

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

Intangible drilling costs must be capitalized and recovered through depletion.

A purchased trademark is a § 197 intangible.

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

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

On March 1,2016,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2016,she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table for auto leases is $70,determine Lana's gross income attributable to the lease.

Land improvements are generally not eligible for cost recovery.

The factor for determining the cost recovery for eligible real estate under MACRS,in the year of disposition,is taken from the month of the disposition.

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

Mary purchased a new five-year class asset on March 7,2016.The asset was listed property (not an automobile) .It was used 60% for business and the rest of the time for personal use.The asset cost $900,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $600,000.Mary also takes additional first-year depreciation (if available) .Determine the total deductions with respect to the asset for 2016.

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

Polly purchased a new hotel on July 20,2016,for $6,000,000.On January 20,2023,the building was sold.Determine the cost recovery deduction for the year of the sale.

In 2015,Gail had a § 179 deduction carryover of $30,000.In 2016,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2016 is $140,000.Determine Gail's § 179 deduction for 2016.

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Tan Company acquires a new machine (ten-year property) on January 15,2016,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2016,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first-year depreciation if available.Determine the total deductions in calculating taxable income related to the machines for 2016.