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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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Timothy purchased a new computer for his consulting practice on October 15^th 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 deduction with respect to the computer during the current year?

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$0.
No depreciation deduction ...

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Question 32

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The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

A) True
B) False

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Question 33

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If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

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

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.

Wheeler LLC purchased two assets during the current year (a full 12-month tax year) . On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $15,000 and on April 20 placed in service furniture (seven-year property) with a basis of $11,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

Which of the following would be considered an improvement rather than routine maintenance?

Taxpayers may use historical data to determine the recovery period for tax depreciation.

Janey purchased machinery on April 8^th of the current year. The relevant costs for the year are as follows: machinery for $10,000, $800 shipping, $50 for delivery insurance, $500 for installation, $750 for sales tax, $150 for the annual tune-up, and $200 of property taxes (an annual tax on business property). What is Janey's tax basis for the machinery?

Bonus depreciation is used as a stimulus tool by tax policy makers.

Limits are placed on the depreciation of luxury automobiles.

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Billie Bob purchased a used camera (five-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation deduction during the second year, assuming the sole proprietorship had a loss during the year. (Billie Bob did not place the asset in service in the last quarter.) (Use MACRS Table 1.)

Crouch LLC placed in service on May 19, 2019, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation) . (Use MACRS Table 1.)

An office desk is an example of:

Amit purchased two assets during the current year. On April 16th Amit placed in service computer equipment (five-year property)with a basis of $5,000 and on September 9th placed in service furniture (seven-year property)with a basis of $20,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation deduction during the current year. (Use MACRS Table 3.)

Which of the allowable methods allows the most accelerated depreciation?

The method for tax amortization is always the straight-line method.