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Exam 9: Property Acquisition and Cost Recovery

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Question 41

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Taxpayers may use historical data to determine the recovery period for tax depreciation.Taxpayers use the recovery periods outlined in Revenue Procedure 87-56.

A) True
B) False

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Question 42

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Taxpayers use the half-year convention for all assets.For personal property,taxpayers must use either the half-year or mid-quarter convention.

A) True
B) False

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Question 43

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Business assets that tend to be used for both business and personal purposes are referred to as listed property.

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 expense for the current year?

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

Significant limits are placed on the depreciation of luxury automobiles.

Lax,LLC purchased only one asset during the current year.It placed in service computer equipment (5-year property) on August 26 with a basis of $20,000.Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) :

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Which depreciation convention is the general rule for tangible personal property?

Poplock LLC purchased a warehouse and land during the current year for $350,000.The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land.The property was placed in service on August 12.Calculate Poplock's maximum depreciation for this first year,rounded to the nearest whole number:

Tax depreciation is currently calculated under what system?

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 expense for the current year?

Beth's business purchased only one asset during the current year.It placed in service machinery (7-year property) on December 1 with a basis of $50,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) :

If the business use percentage for listed property falls below 50 percent,the only adjustment is all future depreciation must be calculated under the straight-line method.The property is subject to depreciation recapture for any excess depreciation over the straight line method using the ADS recovery period over the entire time.

Which is not an allowable method under MACRS?

Geithner LLC patented a process it developed in the current year.The patent is expected to create benefits for Geithner over a 10 year period.The patent was issued on April 15^th and the legal costs associated with the patent were $43,000.In addition,Geithner had unamortized research expenditures of $15,000 related to the process.What is the total amortization expense Geithner may deduct during the current year?