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

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Question 61

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If startup expenses total $53,000 in 2014, $51,000 is amortized over 180 months.

A) True
B) False

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Question 62

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On June 1, 2014, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation (if available) . Determine the cost recovery deduction for 2015.

A) $3,160.
B) $3,290.
C) $3,570.
D) $6,720.
E) None of the above.

F) D) and E)
G) A) and E)

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Question 63

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On April 15, 2014, Sam placed in service a storage facility (a single-purpose agricultural structure) costing $80,000. Sam also purchased and planted fruit trees costing $40,000. Sam does not elect to expense any of the acquisitions under § 179 and he elects not to take additional first­year depreciation (if available). Determine Sam's cost recovery from these two items for 2014.

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

Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape Corporation's cost recovery would begin:

Joe purchased a new five-year class asset on June 1, 2014. The asset is listed property (not an automobile). It was used 55% for business and 45% for the production of income. The asset cost $100,000. Joe made the § 179 election. Joe's taxable income would not create a limitation for purposes of the § 179 deduction. Joe does not take additional first­year depreciation (if available). Determine Joe's total cost recovery (including the § 179 deduction) for the year.

Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS) . Determine the cost recovery deduction for 2015.

The key date for calculating cost recovery is the date the asset is placed in service.

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

On March 3, 2014, Sally purchased and placed in service a building costing $12,000,000. The building has 10 floors. The bottom three floors are rented out to businesses. The top seven floors are residential apartments. The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000. Determine Sally's cost recovery for the building in 2014.

If a new car that is used predominantly in business is placed in service in 2014, the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight­line depreciation.

Land improvements are generally not eligible for cost recovery.

Polly purchased a new hotel on July 20, 2014, for $6,000,000. On January 20, 2021, the building was sold. Determine the cost recovery deduction for the year of the sale.

Motel buildings have a cost recovery period of 27.5 years.

In 2013, Gail had a § 179 deduction carryover of $30,000. In 2014, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2014 is $140,000. Determine Gail's § 179 deduction for 2014.

On May 30, 2014, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2014. In August 2014, Jane paid $300,000 for leasehold improvements to the building. Determine Jane's total deduction with respect to the leasehold improvements for 2014.