Tax 405 Ch 10 Smart Module
Rex's Wrecks purchased $1,251,000 in new equipment during 2020. Rex wants to use Section 179 to expense the maximum amount of the purchase. If Rex is not using bonus depreciation, how much will Rex get to expense under Section 179 and what will be the adjusted basis of the assets for calculating MACRS depreciation expense? Section 179-$1,040,000; adjusted basis subject to MACRS-$211,000 Section 179-$211,000; adjusted basis subject to MACRS-$1,040,000 Section 179-$1,251,000; adjusted basis subject to MACRS-$0 Section 179-$1,000,000; adjusted basis subject to MACRS-$251,000
Section 179-$1,040,000; adjusted basis subject to MACRS-$211,000
Rambo Manufacturing Co. purchased $2,885,000 in new production equipment (7-yr, 14.29%) during 2020. All of the equipment was purchased in June. What is the maximum depreciation deduction Rambo can take this year (assuming Rambo elected out of taking bonus depreciation)?
Section 179-$745,000; MACRS-$305,806 Reason: The ceiling is reduced by $295,000 (2,885,000-2,590,000) for a total of $745,000. Then apply MACRS at .1429 to the residual $2,140,000.
During the second quarter of Year 1, Barbara's Bakery purchased furnishings (7 year property) at an original cost of $15,000. She did NOT take bonus depreciation or Section 179 expense in the year of purchase. Due to other asset purchases in Year 1, the mid-quarter convention is being used for calculating the depreciation on the furnishings. If Barbara sells the furnishings in October of Year 4 how much can she deduct for depreciation in the year of sale? $898 $0 $1571 $1796
$1571 ??how ($15,000 x.1197) x.875 = $1,571 Where's the .875 from? Isn't it (10-.5/12) --> I think it's a typo. 1571 comes if it's sold in Nov (11-.5/12 = .875) Or is the formula the month asset's disposed - *1*.5? Is it 1.5 for personal property and 0.5 for real property?
Jack and Diane decided to remodel their kitchen. They removed their old cabinets and replaced them with newer, nicer cabinets. They installed the old cabinets in a rental home that they own and lease to other people. The original cost of the old cabinets was $6,000. The fair market value on the date they were installed in the rental house was $2,500. The cost of the new cabinets was $11,000. What amount should Jack and Diane use as the basis for depreciation for the cabinets that have been installed in the rental property?
$2500 The basis is the *lesser* of the original cost or the FMV at *date of conversion*
Charlie purchased land containing a large amount of trees for $225,000. He estimates the value of the land without the trees is $25,000 and that the timber is worth $200,000. He also estimates that he can get 1 million board feet of lumber from cutting the trees. In the first year of his endeavor, he cuts 250,000 board feet. Assuming Charlie uses the cost depletion method, his depletion expense for the year is $
$50,000 $200k/1mill * 250k ft
Inheritance Harry inherited 100 shares of stock from his aunt upon her death. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date she died. What is the amount of Harry's basis in the stock? $5000 $20 $50 $2000
$5000 Assets acquired through inheritance generally receive a basis equal to the FMV on the transferor's date of death.
A business may immediately expense up to $_____ (subject to phase-out rules) of both organizational expenditures and start-up costs with any remaining cost being amortized over ____ years.
$5000, 15 yrs
Frank purchased land containing oil reserves for $425,000. He estimates the value of the land without the oil is $25,000. He also estimates that he can extract 20,000 barrels of oil from the property. In the first year of his endeavor, the property produced 6,000 barrels of oil. Assuming Charlie uses the cost depletion method, his depletion expense for the year is $
$6000 425-25 400/25 * 20 barrels
Assets eligible to be expensed under 179
*EX of eligibile 179 assets:* --new delivery truck --new office furniture --used equipment *Real property not eligible for 179 unless it's qualified real property* ---qualified real property does NOT include residential rental property (apt complex), storage warehouse, or land
Which of the following items are needed to calculate MACRS depreciation for an asset? (Check all that apply.) --Asset's condition or age --Asset's depreciable basis --Date placed in service --Applicable depreciation convention --Asset's expected usefulness --Applicable depreciation method --Applicable recovery period
--Asset's depreciable basis --Date placed in service --Applicable depreciation convention --Applicable depreciation method --Applicable recovery period NOT --Asset's condition or age --Asset's expected usefulness
Which of the following costs should be included in the asset's original cost basis? (Check all that apply.) --Repairs prior to putting the asset in service --Installation charges --Sales tax --Repairs after putting the asset in service --Purchase price --Depreciation --Shipping charges
--Repairs prior to putting the asset in service --Installation charges --Sales tax --Purchase price --Shipping charges NOT --depreciation --repairs AFTER putting asset in service
Qualified Property for Bonus Depreciation
1. have a regular depreciation life of 20 yrs or less 2. computer software 3. water utility property 4. qualified film, tv, & live theater productions must be new or used (as long as not previously used by taxpayer) **must be new *to the taxpayer*
Real property classified in 3 ways
1. land (NOT depreciable) 2. residential rental property (used as dwelling units by lessees) 3. nonresidential property
For 2020, the maximum depreciation on luxury automobiles for the first year including MACRS depreciation and Sec. 179, but excluding bonus depreciation is ____. The maximum Section 179 deduction for SUVs and trucks weighing over 6,000 pounds is ___
10100, 25900
Bill purchased a used automobile in the current year for $78,000 that will be used 100% for business. Assuming that the mid-quarter convention did NOT apply, what is the amount of depreciation he is allowed to take in the second year of the asset's life, assuming he elected NOT to take bonus depreciation in the first year?
16100 (in 2020) luxury auto limitation for year 2 The car has a 5-year recovery period. The purchase price subjects the car to the luxury vehicle limits. The maximum deduction for year 2 is $16,000.
What is the recovery period for Section 197 intangibles? Multiple choice question. The greater of 180 months or their actual life The lesser of 180 months or their actual life Their actual life 180 months, regardless of their actual life
180 months, regardless of their actual life 15 yrs
Profitable businesses will likely use ______ depreciation while companies with lower marginal rates that are expected to rise over time will likely use ______ depreciation. 200% declining balance; 150% declining balance 200% declining balance; straight-line straight-line; 200% declining balance straight-line; 150% declining balance
200% declining balance; straight-line 200% bc it generates largest depreciation deduction in early years of asset's life (highest current-year after-tax cash flows) Straight-line bc generates less depreciation in early years --> more depreciation in later yrs when marginal tax rates may increase
Section 179 expensing, bonus depreciation, and MACRS depreciation rates are available for listed property if its business-use percentage exceeds _____
50%
In 2020, Bill purchased an automobile for $65,000 that will be used 80% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct _____ in regular MACRS depreciation the first year. However, he will only be able to deduct _____ due to the luxury limitations.
52000 (65k * 80%) 14480 (18100 * 80%)
Randy owns and rents a residential duplex that he purchased 17 years ago in the month of May. The purchase price was $250,000. During August of the current year, Randy sold the duplex. What is the amount of depreciation that can be deducted in the current year (Rounded to the nearest dollar)? (17 yr, residential property, May = 3.636%)
5681 8-.5/12 * .03636 * 250000
The luxury automobile limitations do NOT apply to vehicles weighing more than ____ pounds. These vehicles are allowed to compute regular ____ depreciation expenses for these vehicles.
6000, MACRS
In 2020, Bill purchased a new automobile for $78,000 that will be used 100% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct _______ in regular MACRS depreciation and bonus depreciation the first year. However, he will only be able to deduct ______ due to the luxury limitations.
78000, 18100
Frank purchased land containing oil reserves for $425,000. He has calculated his cost depletion for the year to be $20 per barrel for a total of $120,000 in depletion expense. He now needs to calculate his percentage depletion in case it is larger. His gross income from the oil extraction is $600,000 and he has $520,000 in operating expenses before depletion expense. Assuming this is domestic production, the amount of percentage depletion expense is $. If he uses this method he can deduct $ for tax purposes. He should use the depletion method to maximize his deduction.
90000 80000 cost
what is the half-year convention under MACRS?
According to the rules of MACRS, *personal property* can *deduct a half-year of depreciation* for the year property is *placed in service or disposed* allows 50% of a full year's depreciation in the year the asset is placed in service/disposed of, regardless of when it was actually placed in service.
Sally's Seashells, a calendar year company, purchased three assets during April of the current year: Asset A costing $20,000 with a 5-year recovery period; Asset B costing $20,000 with a 7-year recovery period; Asset C costing $120,000 with a 27.5 year recovery period. Sally wants to maximize her depreciation deduction for the year. If she takes Section 179 expense on only one asset, she should chose __.
Asset B It's best to choose the asset with the longest recovery period because the depreciation deduction under MACRS is less than those with shorter recovery periods. If Asset C is 27.5-year property, this means it must be a residential real property. Section 179 can NOT be used on residential real property.
During the prior three years, listed property was being used 75% for business and 25% for personal use. For the current and future years, business use has dropped to 40%. Which of the following statements is correct? Since the business use has dropped to 50% or below, just Section 179 expense and bonus depreciation taken on the asset must be recaptured. The depreciation for the current and future years must be computed using the MACRS straight-line method over the MACRS ADS recovery period, but no recapture is required. Since the business use has dropped to 50% or below, the excess of accelerated depreciation over straight-line for all prior years must be recaptured. Since the business use has dropped to 50% or below, the total amount of depreciation for all prior years must be recaptured.
Since the business use has dropped to 50% or below, the excess of accelerated depreciation over straight-line for all prior years must be recaptured.
Which of the following depreciation provisions are available to listed property that is used less than 50% for business purposes? Straight-line depreciation on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost Section 179 expensing on the business-use percentage of the cost Double declining balance depreciation on the business-use percentage of the cost
Straight-line depreciation on the business-use percentage of the cost
Which of the following methods is NOT acceptable for the tax treatment of research and experimentation expenditures? Capitalize the costs and depreciate them using MACRS with a 3-year recovery period. Capitalize the costs and amortize them over the determinable useful life. Capitalize the costs and amortize them over not less than 60 months beginning the first month benefits are derived. Expense the costs immediately.
Capitalize the costs and depreciate them using MACRS with a 3-year recovery period.
How does depreciation affect the tax basis of an asset? The original basis is increased by the depreciation allowed or allowable on the asset each year. The tax basis is reduced by the depreciation expense deducted on the tax return each year. Reason: If the tax deduction taken is incorrect, the asset must still be reduced by the depreciation allowed or allowable. The original basis is increased by the depreciation expense deducted on the tax return each year. The tax basis is reduced by the depreciation allowed or allowable on the asset each year.
The *tax* basis is *reduced* by the *depreciation allowed or allowable* on the asset each year.
Lucky started a new business last year. Since it was the first year of operation, the business purchased $10,000 in machinery and used the straight-line method for depreciation. Business is booming, so Lucky purchased $15,000 in equipment during the current year to help meet production demands. Which of the following statements is true regarding the depreciation choices available to Lucky? The new machinery can be depreciated using the same method or a different method than the previously purchased machinery. If Lucky wants to use a different depreciation method, he must recapture depreciation and change the method used on the prior purchase of machinery. The new machinery must be depreciated using the same method as the previously purchased machinery.
Correct Answer The new machinery can be depreciated using the same method or a different method than the previously purchased machinery.
The amount of the cost that can be recovered on an annual basis for the investment in natural resources is the larger of which of the following two methods? (Check all that apply.) Straight-line depletion method MACRS depletion method Cost depletion method Percentage depletion method
Cost depletion method Percentage depletion method
3 Cost Recovery Methods
Depreciation Amortization Depletion
Which of the following choices reduces the basis of an asset? Depreciation actually deducted on the asset Maintenance costs related to the asset Ordinary repairs related to the asset Depreciation allowed, but not deducted, on the asset
Depreciation actually deducted on the asset AND Depreciation allowed, but not deducted, on the asset
our friend, Andy, is considering purchasing a vehicle for use in his business in 2020. He is asking about the depreciation rules and Section 179 expensing. What advice below is accurate and correct? (Check all that apply.) The Section 179 expense for SUVs and trucks weighing over 6,000 pounds is $25,900. The Section 179 deduction plus the regular MACRS depreciation is limited to $10,100 in the first year. Bonus depreciation is NOT allowed for vehicles using the Section 179 deduction. MACRS depreciation for SUVs and trucks weighing over 6,000 pounds is also $10,100. Bonus depreciation of up to $8,000 is allowed in addition to Sec. 179 and MACRS regular deduction
The Section 179 expense for SUVs and trucks weighing over 6,000 pounds is $25,900. The Section 179 deduction plus the regular MACRS depreciation is limited to $10,100 in the first year. Bonus depreciation of up to $8,000 is allowed in addition to Sec. 179 and MACRS regular deduction.
When comparing depreciation rules for regular tax purposes to those for alternative minimum tax (AMT) purposes, which of the following statements are *correct*? (Check all that apply.) Multiple select question. The allowable recovery periods are longer for all depreciable assets for AMT purposes than for regular tax purposes. Reason: The allowable recovery periods are the same. Depreciation of real property is the same for both regular tax purposes and AMT purposes. For AMT purposes, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. For AMT purposes, businesses must use the 150 percent declining balance or the straight-line method to depreciate tangible personal property. Section 179 expense is NOT deductible for AMT purposes. Reason: Section 179 and bonus depreciation are equally deductible for both regular tax and AMT
Depreciation of real property is the same for both regular tax purposes and AMT purposes. For AMT purposes, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. For AMT purposes, businesses must use the 150 percent declining balance or the straight-line method to depreciate tangible personal property.
Regarding natural resources OTHER THAN oil and gas, which of the following statements is true for percentage depletion, but NOT true for cost depletion? The amount can NOT exceed 50 percent of the taxable income from the natural resource business activity before deducting the depletion expense. The method can NOT be used once the cost of the resource has been recovered. The amount of depletion is calculated in the year the businesses produces or extracts the natural resource.
The amount can NOT exceed 50 percent of the taxable income from the natural resource business activity before deducting the depletion expense.
When comparing depreciation rules for regular tax purposes to those for alternative minimum tax (AMT) purposes, which of the following statements are *incorrect*? (Check all that apply.) Multiple select question. Bonus depreciation is deductible for both regular tax purposes and AMT purposes. Depreciation of real property uses longer recovery periods for AMT purposes than for regular tax purposes. For AMT, the total AMT depreciation is always added to regular taxable income to calculate the AMT base. For AMT purposes, businesses must depreciate tangible personal property using the 200 percent declining balance method. The allowable recovery periods and conventions are the same for all depreciable assets for AMT purposes as for regular tax purposes.
Depreciation of real property uses longer recovery periods for AMT purposes than for regular tax purposes. For AMT, the total AMT depreciation is always added to regular taxable income to calculate the AMT base. For AMT purposes, businesses must depreciate tangible personal property using the 200 percent declining balance method.
True or false: A taxpayer will use the luxury automobile limitations for depreciation in the year the car is purchased, then the regular MACRS depreciation percentages will be applied for the remaining recovery periods. T/F
False If the automobile depreciation limits apply in the first year, the taxpayer must use the IRS maximum limits for all subsequent years.
Once the entire cost of a resource has been recovered, the business is NOT allowed to continue deducting depletion expense for the resource.
False?? : Cost depletion can no longer be used, but the business can continue to use percentage depletion.
In which accounting area(s) is an asset's estimated useful life determined by the taxpayer's assessment, rather than being predetermined based on asset type? Financial accounting only Tax accounting only Both financial and tax accounting
Financial accounting only Tax-- depreciation predetermined by asset type For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.
Which convention applies to the amortization of purchased intangibles? Multiple choice question. Half-year Mid-month Mid-quarter Full-month
Full-month
Rex's Wrecks purchased $150,000 in new equipment during 2020. Rex's gross business income for the year is $1,200,000 and his business expenses (including regular and bonus depreciation) before Section 179 deduction total $1,150,000. Assuming Rex wants to take the maximum Section 179 deduction allowable, which of the following statements is correct? He can expense the maximum $1,040,000 in the current year and have nothing to carry forward until next year. He can expense the maximum $50,000 in the current year and carry forward $100,000 until next year. He can expense all $150,000 in the current year and have nothing to carry forward until next year. He can NOT use the Sec. 179 expense this year because the total amount of the purchases is less than $1,040,000.
He can *expense the maximum $50,000 in the current year and carry forward $100,000 until next year.* *Incorrect answers*: He can expense the maximum $1,040,000 in the current year and have nothing to carry forward until next year. Reason: Rex can take a Section 179 deduction up to his business income before the deduction. He is also limited by the total purchase ($150,000). He can expense all $150,000 in the current year and have nothing to carry forward until next year. Reason: Rex can take a Section 179 deduction up to his business income before the deduction.
Which of the following is NOT considered a start-up cost of a business? Multiple choice question. Costs of purchasing a business Training costs for employees before opening business Costs of investigating the purchase of a business Legal fees to draft original organizational documents
Legal fees to draft original organizational documents (org expend)
Personal property
Machinery, furniture, and any other tangible property other than buildings and land stuff you can steal
When depreciating real property under MACRS, which of the following conventions is used?
Mid-month
Which of the following items are classified as Section 197 intangibles? (Check all that apply.) Multiple select question. Covenants not to compete Start-up costs Goodwill Trademarks
NOT start up costs Covenants not to compete Goodwill Trademarks
Which of the following options is NOT a category for intangible assets? Natural resources Research and experimentation costs Patents and copyrights Section 197 purchased intangibles Start-up expenditures and organizational costs
Natural resources
Which of the following calculations is used to determine an asset's adjusted basis? Original basis + significant improvements - depreciation allowed or allowable Original basis + ordinary repairs - depreciation taken Original basis + depreciation taken - significant improvements Original basis + depreciation allowed or allowable - significant improvements
Original basis + significant improvements - depreciation allowed or allowable
Mid-*Quarter* Convention Percentage of Full-Year's Depreciation in Year of Disposition In the year of disposition, multiply normal depreciation for that year by these percentages
Quarter -- Calculation 1st quarter - 1.5/12 (12.5%) 2nd quarter - 4.5/12 (37.5%) 3rd quarter - 7.5/12 (62.5%) 4th quarter - 10.5/12 (87.5%) **DONT CONFUSE WITH MID-MONTH REAL PROPERTY
When depreciating *real property* under MACRS, the recovery rates are based on the ______ method.
STRAIGHT-LINE
Which of the following depreciation provisions are available to listed property that is used more than 50% for business purposes? (Check all that apply.) Multiple select question. Section 179 expensing on the business-use percentage of the cost MACRS depreciation on the business-use percentage of the cost MACRS depreciation on one-half of the total cost Bonus depreciation on the business-use percentage of the cost Section 179 expensing on the total cost
Section 179 expensing on the *business-use percentage of the cost* MACRS depreciation on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost
Andrew's Art Studio, a calendar year company, purchased three assets during the year. A computer costing $1,500 was purchased in April; office furniture costing $1,800 was purchased in July; and a delivery truck costing $17,000 was purchased in October. Which of the following statements is correct regarding the depreciation of the assets (assuming no bonus deprecation is taken)? The art studio must use the mid-quarter convention for any assets that are not expensed under Section 179. The art studio should use the half-year convention for the computer and the office furniture and the mid-quarter convention for the delivery truck. The art studio can use the half-year convention for the computer and the office furniture if the delivery truck is expensed under Section 179. The art studio can only use Sec. 179 to expense the computer and office furniture. The truck must be depreciated using the mid-quarter convention.
The art studio can use the half-year convention for the computer and the office furniture if the delivery truck is expensed under Section 179. *Incorrect answers:* The art studio must use the mid-quarter convention for any assets that are not expensed under Section 179. *Reason:* The art studio can use the half-year convention for the computer and the office furniture if the delivery truck is expensed under Section 179. The art studio should use the half-year convention for the computer and the office furniture and the mid-quarter convention for the delivery truck. *Reason:* If mid-quarter convention is used for one asset placed into service during the year, it must be used for all assets placed into service for the year. The art studio can only use Sec. 179 to expense the computer and office furniture. The truck must be depreciated using the mid-quarter convention. *Reason:* The art studio can use the 179 deduction on the truck.
A calendar year-end business purchased a new delivery truck at the end of March during the current year. The truck was the only asset purchased during the year. Which of the following statements is correct regarding the depreciation that can be taken on the truck? The business will deduct three-fourths (9 months) of a full year's depreciation on the truck in the current year. The business will deduct one-fourth (3 months) of a full year's depreciation on the truck in the current year. The business will deduct 3.5 quarters (10.5 months) of depreciation on the truck in the current year. The business will deduct one-half of a full year's depreciation on the truck in the current year.
The business will deduct one-half of a full year's depreciation on the truck in the current year
If a business purchases $3,220,000 in equipment during 2020, what is the impact on the Section 179 election? The ceiling amount will be reduced by $410,000 to a maximum eligible deduction of $2,810,000. The Section 179 deduction is eliminated when purchases exceed $2,590,000 in 2020. The ceiling amount will be reduced by $630,000 to a maximum eligible deduction of $410,000 for the current year. The business will only be able to take the Section 179 deduction on $1,040,000 of the assets purchased.
The ceiling amount will be reduced by $630,000 to a maximum eligible deduction of $410,000 for the current year. 3220000-2590000 limit = $630,000. 1,040,000-630,000 = 410,000 max eligible deduction for the yr
Andrews Art Studio purchased its shop fifteen years ago. During the current year, the business installed a new roof and central air-conditioning system. Which of the following choices is correct regarding the substantial improvements made during the current year? The cost of the assets will be classified as nonresidential property and recovered over 39 years. The cost of the assets will be added to the adjusted basis of the building and depreciated over the remaining recovery period for the building. The assets will be classified as personal property and the cost will be recovered over 7 years.
The cost of the assets will be classified as nonresidential property and recovered over 39 years. they become their own new assets
Mark's Markers purchased a building and land for $750,000. How should Mark's Markers account for the purchase? The total cost will be allocated to the building in order to allow the business to deduct the maximum amount of depreciation. The total purchase price will be allocated to the land because it results in the most conservative tax treatment. The land and building must be treated as one asset because they were purchased together. The land and building must be treated as separate assets with a portion of the total cost allocated to each of the assets.
The land and building must be treated as separate assets with a portion of the total cost allocated to each of the assets.
Janet owns land that she uses in her business. Which of the following statements is correct regarding the land? The land is classified as personal-use property, and it can NOT be depreciated because it is not a business asset. The land is classified as real property, and it can be depreciated because it is a business asset. The land is classified as personal property, and it can be depreciated because it is a business asset. The land is classified as real property, but it can NOT be depreciated, even though it is a business asset. The land is classified as personal property, but it can NOT be depreciated, even though it is a business asset.
The land is classified as real property, but it can NOT be depreciated, even though it is a business asset.
The mid-quarter test is applied (before/after) the Section 179 expense is deducted from an asset's basis, and (before/after) bonus depreciation is taken.
The mid-quarter test is applied *after* the Section 179 expense is deducted from an asset's basis, and *before* bonus depreciation is taken. Order: 1. 179 expense 2. Mid-quarter 3. Bonus
What is the recovery period for patents that have been purchased by a business (not as part of an acquisition of another entire business)? Multiple choice question. Five years The legal life of the patent The remaining legal life of the patent at the time of the purchase
The remaining legal life of the patent at the time of the purchase
Which of the following items could be classified as Section 197 intangibles? (Check all that apply.) Multiple select question. Organizational costs Trademarks Research and experimentation expenditures Customer lists Goodwill Patents
Trademarks Customer lists Goodwill Patents
Once the entire cost of a resource has been recovered, the business is NOT allowed to continue deducting depletion expense for the resource. True false question.
True
True or false: Personal property can be business property or personal-use property. True/False
True Reason: Personal property is simply tangible property, other than real property. It may be used in a trade or business or it may be used personally.
Which of the following choices describes how a business should account for organizational expenditures and start-up costs? (Check all that apply.) Multiple select question. Qualifying costs must be amortized over 180 months. Up to $5,000 of each (total of $10,000) can be expensed immediately. A total of up to $5,000 can be expensed immediately. All qualifying costs of each can be expensed immediately. Any costs that are NOT immediately expensed must be amortized over 180 months.
Up to $5,000 of each (total of $10,000) can be expensed immediately. Any costs that are NOT immediately expensed must be amortized over 180 months.
When does a business have to use the mid-quarter convention? When more that half of a business's assets including real property purchased are placed in service during the fourth quarter of the year When a tangible personal property asset is placed in service during the fourth quarter of the year When more than 60% of the tangible personal property purchased is placed in service during the fourth quarter of the year When more than 40% of the tangible personal property purchased is placed in service during the fourth quarter of the year
When more than 40% of the tangible personal property purchased is placed in service during the fourth quarter of the year
Personal use property
any property such as clothing, a home, or a car, that is for purposes OTHER THAN use in a trade, business, or income-producing venture.
A business's deductible Sec. 179 expense is limited to the taxpayer's _______ _________ before deducting the Sec. 179 expense. The business can _______ ________ any amount that cannot be deducted in the current year.
business income carry forward/over
Assets with 5-year recovery period
computer equipment, cars, light general-purpose trucks
The amount of depletion that can be taken on an annual basis is the larger of the amounts computed under the Blank depletion method or the Blank depletion method
cost, percentage
Straight-line depreciation is mandatory and Section 179 expensing is NOT eligible for listed property when the business-use is ______ 50%.
equal to or less than
Listed property
ex: autos, digital cameras, airplane often used for both business and personal purposes NOT manufacturing PPE, office furniture/desk, filing cabinet Listed property includes passenger autos and other property used for transportation, property generally used for purposes of entertainment, recreation, or amusement, computers not used exclusively at a regular business establishment, and other property to be specified by the IRS.
true or false: The cost of marketing or selling stock qualifies as an organizational expenditure and is amortized over 180 months. True false question. True False
false
True or false: When §197 does not apply, patents or copyrights should be amortized over their legal lives.
false A patent or copyright that is purchased should be amortized over the *remaining* useful life of the intangible, while a self-created patent or copyright should be amortized over its legal life.
If real property sold/disposed of, how to calculate depreciation for that year (using mid-month convention)
full yr's depreciation * (month asset disposed - 0.5)/12
in years where many new assets are purchased, regular tax depreciation will be (greater/less) than AMT depreciation, resulting in an (addition/subtraction) of the difference to regular taxable income to arrive at the AMT tax base.
greater, addition
he calculation for the amount of percentage depletion for a natural resource is determined by multiplying the from the resource extraction by a fixed percentage based on the type of natural resource.
gross income
Real property
land and buildings attached to the building real estate
Business assets that are often used for both business and personal purposes are referred to as _____ property
listed/mixed-use
If a business wants to maximize the depreciation deduction, it should choose to take Section 179 expense on assets with the (lowest/highest) first year recovery percentage, (including/excluding) bonus depreciation.
lowest, including
All *real* property is depreciated using the _______ convention
mid-month can expense 1/2 of a month's depreciation for month property was placed in service/sold doesn't matter if it's beginning or end of month
Can 179 expense create a loss?
no**?
Recovery period for real property -- nonresidential after Dec 31, 1986, before May 13, 1993
nonresidential after Dec 31, 1986, before May 13, 1993 31.5 yrs
Recovery period for real property -- nonresidential after May 13, 1993
nonresidential after May 13, 1993 39 yrs
Assets with 7-year recovery period
office furniture, fixtures ex: oven
Costs incurred prior to the starting of a business, or shortly thereafter that relate to creating the business entity, are referred to as: Multiple choice question. organizational expenditures section 197 intangibles goodwill start-up costs
organizational expenditures
Costs of legal services, state fees, and accounting services that relate to creating a business entity and are incurred prior to starting the business are referred to as
organizational expenditures
Recovery period for real property -- residential
residential - 27.5 yrs
In order to compute MACRS depreciation, which of the following pieces of information is NOT required? salvage or residual value for the asset recovery period for the asset depreciation convention used in the year of purchase date placed in service cost or original basis of the asset depreciation method chosen by the business
salvage or residual value for the asset
Similar assets purchased in the same year must be depreciated using the _______ depreciation method, but similar assets purchased in different years can be depreciated using ________ depreciation methods.
same; different Similar assets purchased in the same year must be depreciated using the *same* depreciation method, but similar assets purchased in different years can be depreciated using *different* depreciation methods.
Businesses deduct percentage depletion when they __ the natural resource, and they deduct cost depletion in the year they __ or extract the natural resource.
sell, produce
Costs, such as investigating the possibilities of and actually creating or acquiring a trade or business, are referred to as ___ costs
start up
When depreciating real property under MACRS, the recovery rates are based on which of the following methods? Multiple choice question. 150% declining balance 200% declining balance Straight-line
straight-line
A business's *deductible* 179 expense is limited to _______
the taxpayer's *business income* after deducting *all* expenses (including reg & bonus depreciation) except 179 exp if a *bus claims more 179 exp than allowed to deduct* (due to *taxable income limitation*) it *carries the excess forward* (indefinitely) and *deducts it in a subsequent year*, subject to the taxable income limitation (but not the phase-out limitation) in the subsequent year
Which of the following statements is correct regarding the depreciation of automobiles weighing over 6,000 pounds? These vehicles can be depreciated using regular MACRS percentages. Bonus depreciation is NOT allowed for vehicles weighing over 6,000 pounds. These vehicles must be depreciated using straight-line rates. The depreciation may be limited by the automobile depreciation limits set by Congress.
these vehicles can be depreciated using regular MACRS percentages.
Mid-quarter convention
used for all assets purchased during the year when more than 40% of the tangible personal property purchased is placed in service during the fourth quarter of the year.
Can bonus depreciation create a loss?
yes**?