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Exam 10: Property Acquisition and Cost Recovery

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Question 31

Multiple Choice

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

A) Purchase price
B) Sales tax
C) Installation costs
D) Shipping
E) All of the choices are included in an asset's tax basis.

F) C) and D)
G) B) and E)

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Question 32

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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.

A) True
B) False

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Question 33

Multiple Choice

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

Significant 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.

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

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 theintangible.

Assume that Brittany acquires a competitor's assets on September 30th 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 1-year non-competeagreement) . Given, that the non-compete agreement expires on September 30th of year 2,what is Brittany's amortization expense for the second year? (Round final answer to the nearest whole number)

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Tax cost recovery methods do not include:

Janey purchased machinery on April 8th 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?

Reid acquired two assets in 2017: computer equipment (5-year property) acquired on August 6thwith a basis of $510,000 and machinery (7-year property) on November 9th with a basis of$510,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). (Use MACRS Table 1)

During April of the current year, Ronen purchased a warehouse that he used for business purposes.The basis was $1,600,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 5 in the text)

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

Real property is always depreciated using the straight-line method.

Jasmine started a new business in the current year. She incurred $10,000 of start-upcosts. How much of the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the year?

Northern LLC only purchased one asset this year. In 2017, Northern LLC placed in service on September 6th machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciationexpense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1)(Round final answer to the nearest whole number)