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Exam 9: Property Acquisition and Cost Recovery

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Question 41

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Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

A) True
B) False

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Question 42

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Reid acquired two assets this year: computer equipment (5-year property) acquired on August 6th with a basis of $500,000 and machinery (7-year property) on November 9th with a basis of $500,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). Assume the 2013 §179 limits are extended to 2014.

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Question 43

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Timothy purchased a new computer for his consulting practice on October 15th of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

Tax cost recovery methods include depreciation, amortization, and depletion.

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Tax depreciation is currently calculated under what system?

All taxpayers may use the §179 immediate expensing election on certain property.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?

Alexandra purchased a $35,000 automobile during 2014. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)?

All assets subject to amortization have the same recovery period.

Boxer LLC has acquired various types of assets recently. Below is a list of assets acquired during 2013 and 2014: $\begin{array} { | l | r | l | l | } \hline \text { Asset } & { \text { Cost Basis } } & \text { Convention } & \text { Date Placed in } \\& & & \text { Service } \\\hline \text { Machinery } & 25,000 & \text { Half year } & \text { January 24, 2013 } \\\hline \text { Warehouse } & 800,000 & \text { Mid month } & \text { August 1, 2013 } \\\hline \text { Furniture } & 100,000 & & \text { October 5, 2014 } \\\hline \text { Computer equipment } & 65,000 & & \text { October 10, 2014 } \\\hline \text { Office equipment } & 34,000 & & \text { September 28, 2014 } \\\hline \text { Automobile } & 35,000 & & \text { July 15, 2014 } \\\hline \text { Office building } & 800,000 & & \text { September 24, 2014 } \\\hline\end{array}$ Boxer did not elect §179 expense or potential bonus depreciation in 2013, but would like to elect §179 expense for 2014 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2014, rounded to the nearest whole number (ignore bonus depreciation for 2014). If necessary, use the 2013 luxury automobile limitation amount for 2014 and assume that the 2013 §179 limits are extended to 2014.

Cost depletion is available to all natural resource producers.

Which of the following is not usually included in an asset's tax basis?

Which of the following assets is eligible for bonus depreciation?

If a machine (seven-year property) being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciation percentage from the MACRS table percentage by 50 percent to calculate the depreciation expense properly.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion expense for the current year?

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23rd of the current year, what is the total expense she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?