Cost Recovery Corporation

Part 1:
The Tim Cost Recovery Corporation (Tim) purchased and placed in service the following depreciable property in 2012:
Property / Placed In Service Date / Cost
5-year property / January 10, 2012 / 2,000
7-year property/ April 1, 2012 / 2,000
5-year property/ August 21,2012 / 2,000
3-year property/ December 1, 2012 /10,000
Required:
1. Calculate Tim’s 2012 cost recovery deduction (Assume Tim did not make a section 179 election and elected out of bonus depreciaiton). Show your work and explain your calculations.
2. Tim purchased and placed in service the following depreciable property in 2013.
Property / Placed in Service Date / Cost
5-year property / January 1, 2013 / 4,000
5-year property/ December 1, 2013 / 1,000
New Warehouse / September 2, 2013 / 400,000*
*50,000 of the 400,000 purchase price was allocated to the land.
Calculate Tim’s 2013 cost recovery deduction (assume Tim did not make a section 179 election and elected out of bonus depreciation). Calculate the total cost recovery deduction (on both 2012 and 2013 assets). Show your work and explain your calculations.
3. Tim sold the 3-year property (purchased in 2012) on February 27, 2014 for 7,000. Calculate (1) Tim’s 2014 cost recovery deduction; and (2) the amount and character of gain or loss on the sale of the 3-year property. Show your work and explain your calculations.
Part 2:
Recalculate your answers to Part 1 (questions 1 and 2) assuming that Tim Corporation did not elect to expense any amount under section 179 but did not elect out of bonus depreciation for both 2012 and 2013 (i.e., Tim Corporation took advantage of bonus depreciation in 2012 and 2013). Calculate Tim’s maximum cost recovery deduction for 2012 and 2013. Show your work and explain your calculations.