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Exam 2: Property Acquisition and Cost Recovery

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Question 41

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Eddie purchased only one asset during the current year. On May 1^st Eddie placed in service furniture (seven-year property) with a basis of $26,500. Calculate the maximum depreciation deduction, rounded to the nearest whole number (ignoring §179 and bonus depreciation).

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$3,787.
The asset's recovery period is s...

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Question 42

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If the business-use percentage for listed property falls below 50 percent, the only adjustment isthat all future depreciation must be calculated under the straight-line method.

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B) False

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Question 43

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

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

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 deduction for the current year?

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

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

Flax LLC purchased only one asset this year.On January 16 Flax placed in service a computer (five-year property) with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation).

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

Which of the following assets is not eligible for bonus depreciation?

Which of the allowable methods allows the most accelerated depreciation?

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Sairra LLC purchased only one asset during the current year (a full 12-month tax year) . On April 16 Sairra placed in service furniture (seven-year property) with a basis of $25,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) .

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

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

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?

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

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

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 depreciationpercentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Assume that Brittany acquires a competitor's assets on September 30 ^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement) . Given that the noncompete agreement expires on September 30 ^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)