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

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Question 41

True/False

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The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

A) True
B) False

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Question 42

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On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

A) $70,000.
B) $90,000.
C) $120,000.
D) $140,000.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 43

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Alice purchased office furniture on September 20, 2013, for $100,000. On October 10, 2013, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2014. Alice did not elect to expense any of the assets under § 179, did not elect straight­line cost recovery, and did not take additional first­year depreciation (if available) . Determine the cost recovery deduction for the business assets for 2014.

Jim acquires a new seven-year class asset on September 20, 2013, for $80,000. He placed the asset in service on October 5, 2013. He does not elect to expense any of the asset under § 179 or elect straight­line, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2014. This is the only asset he acquires in 2013. Determine Jim's cost recovery in 2013 and 2014.

Norm purchases a new sports utility vehicle (SUV) on October 12, 2014, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2014. Compute the maximum deduction with respect to the SUV for 2014. Norm does take additional first- year depreciation (if available).

All personal property placed in service in 2013 and used in a trade or business qualifies for additional first-year depreciation.

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are as follows: $\begin{array}{rrr}&\text { Cost Recovery Allowed }&\text { Cost Recovery Allowable }\\\text { Year 1 } & \$ 16,000 & \$ 8,000 \\\text { Year 2 } & 9,600 & 12,800 \\\text { Year 3 } & 5,760 & 7,680\end{array}$ If Tara sells the machine after three years for $15,000, how much gain should she recognize?

On July 10, 2014, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2014, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation (if available) .

Discuss the effect on the cost recovery method of a taxpayer election if the uniform capitalization rules apply to a farming business.

If a used $35,000 automobile used 100% for business in the first year (2014) fails the 50% business usage test in the second year, no cost recovery will be recaptured.

Pat purchased a used five-year class asset on March 15, 2014, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2014 for earnings and profits purposes.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

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

Bonnie purchased a new business asset (five-year property) on March 10, 2013, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2013, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight­line cost recovery. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2013 for these assets.

In 2014, Marci is considering starting a new business. Marci had the following costs associated with this venture: $\begin{array}{lr}\text { Advertising } & \$ 5,000 \\\text { Travel } & 10,000 \\\text { Market surveys } & 8,000 \\\text { Professional services } & 30,000 \\\text { Interest expense } & 2,000 \\\text { Taxes } & 1,000\end{array}$ Marci started the new business on January 5, 2015. Determine the deduction for Marci's startup costs for 2014.

Antiques may be eligible for cost recovery if they are used in a trade or business.

The statutory dollar cost recovery limits under § 280F for passenger automobiles are changed if mid­quarter cost recovery is used.

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

Percentage depletion enables the taxpayer to recover more than the cost of an asset.

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