Chapter 5 Flashcards
During 2019, Klecker, Inc. placed in service a new machine costing $3,000,000. How much can Klecker elect to immediately expense in 2019 under Code Sec. 179?
$1,020.00
Seven-year property is typically depreciated using the double declining balance method but the question tells you to use straight line. Therefore, we will use straight line. The question also tells you to use the mid-quarter convention. Under the mid-quarter convention, the asset is deemed placed in service in the middle of the quarter.
Date placed in service: July 7 (Quarter 3)
Middle of Quarter 3 (Jul 1-Sep 30): August 15
From August 15 to the end of the year, we have 4.5 months.
Therefore, your first depreciation should be prorated 4.5/12
$75,0001/74.5/12=$4,018
Five-year property costing $25,000 was placed in service on April 11 of the current year. Assume the following:
The property has no salvage value
The property is depreciated using the straight line method
The company elects not to take advantage of either bonus depreciation or the Code Sec. 179 deduction
The mid-quarter convention applies
What will be depreciation expense with regard to this property for the current year?
1
Last year, a corporation purchased an office building for $190,000. The building’s salvage value was estimated to be $50,000. The building qualifies as 39-year recovery property. Ignore bonus depreciation and Section 179. The corporation’s current year depreciation deduction for the building is:
Ignore salvage value
Cost:190000
Asset class:39 (LOOK AT SLIDE 16)
190000/39=4872 ( As the professor said, the convention applies only in the first and last year. The question said the office building purchased the last years and the question wants to know the depreciation for this year. Therefore, the convention doesn’t apply because the convention applies only in the first year and in the last year.)
A calendar year taxpayer purchased a new factory building for $300,000 on July 1, 2019. The building qualifies as 39-year recovery property. Compute the maximum allowable MACRS depreciation for 2019. (Ignore IRC 179 and bonus depreciation.)
Cost:300000
Asset class:39
Method: Straight Line (LOOK AT SLIDE 16)
Convention: Mid-Month
July 1, 2019 (July 15-Dec 31=5.5 months)
(300000/39)*5.5/12=3526
(The convention applies only in the first year and in the last year. Taxpayer purchased a new factory building for $300,000 on July 1, 2019 and ask about MACRS depreciation for 2019.)
During 2017, a corporation purchased machinery costing $800,000. The maximum deduction the corporation can claim under Code Sec. 179 in 2017 is:
1
Two years ago, a corporation purchased residential real estate (an apartment complex) at a total cost of $250,000. Of this amount, $50,000 was allocated to the underlying land. What is the corporation’s allowable depreciation deduction for the current year under MACRS? (Ignore IRC 179 and bonus depreciation.)
1
Nonresidential real property costing $300,000 was placed in service three years ago, and was sold on March 25 of the current year. Current year depreciation expense with respect to the real estate will be (Ignore IRC 179 and bonus depreciation):
Look at slide 16. Non-residential real property is depreciated over 39 years using the straight line method. The convention is mid-month and it applies only in the first and last year and this question is asking for the last year (the asset is sold).
Therefore: 300,000/39=$7,692.30 (annual depreciation)
The asset was sold on March 25 and the applicable convention is mid-month, which means we pretend that the asset is sold on March 15. This means the asset was in service from January 1 to March 15 (2.5 months out of 12).
Therefore: $7,692.30*2.5/12=$1,602.56 (rounded to $1,603)
Two years ago, a corporation purchased non-residential real estate (an office building) at a total cost of $250,000. Of this amount, $50,000 was allocated to the underlying land. What is the corporation’s allowable depreciation deduction for the current year under MACRS? (Ignore IRC 179 and bonus depreciation.)
Group of answer choices
1
Two years ago, a corporation purchased non-residential real estate (an office building) at a total cost of $250,000. Of this amount, $50,000 was allocated to the underlying land. What is the corporation’s allowable depreciation deduction for the current year under MACRS? (Ignore IRC 179 and bonus depreciation.)
In this problem, we first need to calculate the depreciable amount. Since land is an asset that we do not depreciate, we need to subtract this from the total cost. So the depreciable amount in this problem is 250,000 – 50,000 = 200,000.
Now we can find the asset class and method of depreciation by looking at the slides. Slide 16 tells us that a non-residential real property belongs to the 39-year property class, and the depreciation method is straight line. The applicable convention isn’t relevant here – we only use that in the first and last year of service.
Since this office building was placed in service two years ago, all we need to do now is to find the annual depreciation. This asset was used the entire year, so we need to calculate depreciation for the entire year. We do that by dividing the depreciable amount by the asset class –> 200,000 / 39 = 5,128.
On August 14, 2017, Saul Inc. purchased 5-year property for $100,000. What is the maximum deduction that can be claimed under MACRS for 2017? (Ignore IRC 179 and bonus depreciation.)
1
Larry McGee purchased a machine for use in his business on March 2, 2017, at a cost of $650,000. The machine qualifies as 5-year recovery property. If McGee elects the full amount of Section 179 expense deduction and takes regular MACRS depreciation, what is the maximum deduction that McGee can claim for 2017? (Ignore bonus depreciation but not the IRC 179 deduction.)
Now we can find the total depreciation for 2017.
Total depreciation
IRC 179 deduction 510,000
Bonus depreciation -
MACRS depreciation + 28,000
538,000
So our answer to question 13 is $538,000
The maximum amount of Section 179 expense election for 2015 is:
1
Copper Inc. purchases a copper mine on April 1, 2017 for $400,000. It is estimated that the mine contains 1,000,000 lbs of copper. What is the depletion expense for 2017 if the company extracts and sells 65,000 lbs of copper?
1
Fox Corp., a calendar year corporation, purchased and placed into service factory machinery that cost $70,000 on December 17, 2017. No other asset was placed into service during 2017. Assuming the machinery qualifies as 7-year recovery property, what amount of depreciation is allowable for 2017? (Ignore IRC 179 and bonus depreciation.)
This asset was placed in service in December. When more than 40% of assets are purchased in the last quarter of the year, the mid-quarter convention kicks in instead of the mid-year convention. Under the mid-quarter convention, the asset is deemed placed in service in the middle of the quarter.
Date placed in service: December 17, 2017 (Quarter 4)
Middle of Quarter 4 (Oct 1-Dec 31): November 15
From November 15 to the end of the year, we have 1.5 months. Therefore, your first depreciation should be prorated 1.5/12
$70,0002/71.5/12=$2,500
