Leah Pasternak Federal Taxation ACC307 Chapter 8: Depreciation, Cost Recovery, Amortization Homework Submission 2.

. The basis of the asset must be reduced by the amount of the cost recovery that should have been deducted. 9. The asset is treated as if it were sold in the middle of the quarter and so one half quarter of cost recovery is allowed in the quarter of the sale. The computation of cost recovery if the sale is made in the first quarter would be 0.5/4, the second quarter computation would be 1.5/4, the third quarter would be 2.5/4 and the fourth quarter computation would be 3.5/4. 11. If Robert decides to use straight-line for the 7 year class assets the cost recovery would still be computed the same as using the cost recovery MACRS on the 5 year class assets. He could elect to use a separate election to use MACRS straight-line for 5 year class assets. 23. Since the car weighs more than 6,000 pounds it is not subject to the statutory dollar limits on cost recovery. If the car was classified as an SUV then it would be given certain limitations. 32. Joses cost recovery is $7,198 ($250,000 x 2.879%) 56. ADS: Year 1 (100,000 x 14.29%) Year 2 (100,000 x 24.49%) Year 3 (100,000 x 17.49) Total Cost Recovery MACRS: Year 1 (100,000 x 10.71%) Year 2 (100,000 x 19.13%) Year 3 (100,000 x 15.03%) Total cost recovery Cost recovery lost by electing ADS Tax cost of election ($11,400 x 28%) $10,710 $19,130 $15,030 ($44,870) $11,400 $3,192

$14,290 $24,490 $17,490 $56,270

58. Oleander may deduct $3,000 in startup expenditures 59. Marthas startup expenditures for the current year are $5,828 60. Wess lowest taxable income would be $4,360,000 61. Chriss taxable income under the expensing method would be $1,024,000 and his taxable income under the capitalization method would be $1,880,000.