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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes.On November 10^th 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?

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$800.
When personal property i...

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Question 32

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Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000.It estimated it would extract 500,000 ounces of silver from the deposit.Lucky Strike mined the silver and sold it, reporting gross receipts of $1.8 million, $2.5 million, and $2 million for Years 1 through 3, respectively.During Years 1 through 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000) , $400,000, and $100,000, respectively.In Years 1 through 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: $\begin{array}{l}\text { Ourices extracted per year }\\\begin{array} { l c c } \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\50,000 & 150,000 & 100,000\end{array}\end{array}$ What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 15 percent?

A) $200,000.
B) $375,000.
C) $400,000.
D) $450,000.
E) None of the choices are correct.

F) A) and D)
G) B) and D)

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Question 33

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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 estimated that Santa Fe will recover 5,000 pounds of turquoise.During the past several years, 4,000 pounds were extracted.During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000.What is Santa Fe's cost depletion deduction for the current year?

Tax depreciation is currently calculated under what system?

Like financial accounting, most acquired business property must be capitalized for tax purposes.

Yasmin purchased two assets during the current year.On May 26th Yasmin placed in service computer equipment (five-year property)with a basis of $10,000 and on December 9th placed in service machinery (seven-year property)with a basis of $10,000.Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation).(Use MACRS Table 2.)

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

The 200 percent or double declining balance method is allowable for five- and seven-year property.

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

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?

Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship.The basis of the camera was $2,400.Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year.Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year.(Bonnie did not place the property in service in the last quarter.) (Use MACRS Table 1.)

Bonnie Jo used two assets during the current year.The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation and depreciated under the half-year convention.This asset was disposed of on October 1st of the current year.The second was furniture with an original basis of $24,000, placed in service during the first quarter, currently in the fourth year of depreciation, and depreciated under the mid-quarter convention.What is Bonnie Jo's depreciation deduction for the current year? (Round final answer to the nearest whole number.)(Use MACRS Table 1 and Table 2.)

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

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,450,000 on June 6, 2019.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation) .(Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Limits are placed on the depreciation of luxury automobiles.

The MACRS recovery period for automobiles and computers is:

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Potomac LLC purchased an automobile for $30,000 on August 5, 2019.What is Potomac's depreciation deduction for 2019? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.)

Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it.Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment.During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15.Calculate the maximum depreciation expense.(Use MACRS Table 1.)

An office building was purchased several years ago on December 9th for $2,500,000.The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000.During the current year, the 10^th year, the building was sold on March 10^th.Calculate the maximum depreciation deduction for the real property during the current year, rounded to the nearest whole number.(Use MACRS Table 5.)