ACC 4328 - Ch 10

Businesses must reduce the $1,080,000 maximum section 179 expense dollar for dollar for the amount of qualified property placed in service during 2021 OVER what threshold?

$2,700,000 threshold once it reaches $3,780,000 there is $0 section 179 expense

The remaining amount of organizational expenditures or start-up costs must be amortized over

180 months (15 years) using straight-line method

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 straight-line

3 acceptable methods for depreciating personal property

200% double declining balance method 150% declining balance method straight-line method

depreciation life of residential rental property

27.5

depreciation life of Nonresidential property placed in service after Dec. 31, 1986 and before May 13, 1993

31.5 years

Paula's Pastries expanded its facilities by building an addition to make room for a larger kitchen. The original building was constructed 12 years earlier and is being depreciated using a 39-year recovery period. The cost of the new addition will be depreciated over _____ years

39 years

depreciation of Nonresidential property placed in service after May 13, 1993

39 years

The mid-quarter convention is used for all assets purchased during the year when more than ___% of the tangible ______ property purchased is placed in service during the fourth quarter of the year.

40% personal

The MACRS recovery period for computers and peripheral equipment, cars, and light general-purpose trucks is ____ years. The recovery period for office furniture, fixtures, machinery, and equipment is _____ years.

5 7

Section 179 expensing, bonus depreciation, and MACRS depreciation rates are available for listed property if its business-use percentage exceeds ___%

50%

In 2022, 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.

78,000 18,200

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 Reason: 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.

To compute MACRS you must know what information? (5 items)

Asset's initial basis date asset was placed in service depreciation method depreciation recovery period (depreciable life) depreciation convention

For tax years beginning after December 31, 2021, which of the following methods is acceptable for the tax treatment of research and experimentation expenditures? Capitalize the costs and amortize them ratably over a 5 year period beginning with the midpoint of the year in which the costs were incurred. Expense the costs immediately. Capitalize the costs and depreciate them using MACRS with a 3-year recovery period. Capitalize the costs and amortize them over not less than 36 months beginning the first month benefits are derived.

Capitalize the costs and amortize them ratably over a 5 year period beginning with the midpoint of the year in which the costs were incurred.

How to calculate depreciation expense for personal property

Determine the appropriate convention locate the correct table select the correct column for asset's recovery period find the row identifying the year of the asset's recovery period multiply the asset's basis by the % in that cell

True or False: An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

False

True or False: If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

False

True or false: When §197 does not apply, patents or copyrights should be amortized over their legal lives.

False Reason: 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.

True or false: In order to calculate MACRS depreciation, the business only needs to know the asset's depreciable basis, the recovery period, and which depreciation method (i.e. 200% declining balance) is used.

False The business also needs to know the applicable depreciation convention (e.g. half-year or mid-quarter) to be used as well as the date placed in service.

When will a taxpayer need to recapture depreciation on listed property, and how is the amount of the recapture determined?

If the business use drops to 50% or below, then the excess of MACRS depreciation over straight-line for all prior years is recaptured.

Which of the following assets has a 5-year recovery period for MACRS depreciation? Buildings Office furniture and fixtures Light general-purpose trucks Machinery

Light general-purpose trucks

Which depreciation method is most likely to be used by profitable businesses with high marginal tax rates?

MACRS 200% declining balance

What does MACRS stand for?

Modified Accelerated Cost Recovery System

Antoine owns a car. He uses the car for personal transportation. Which of the following classifications apply to the car? (Check all that apply.) Personal property Business property Personal-use property Income-producing property Investment property Real property

Personal property Personal-use property

Rambo Manufacturing Co. purchased $2,885,000 in new production equipment during 2022. 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-$895,000; MACRS-$284,371 Rationale: The ceiling is reduced by $185,000 (2,885,000-2,700,000) for a total of $895,000. Then apply MACRS at .1429 to the residual $1,990,000.

Four categories of intangible assets for tax purposes

Section 197 intangibles Start-up expenditures and organizational costs Research and experimentation costs Patents and copyrights

Which of the following depreciation provisions are available to listed property that is used less than 50% for business purposes? Bonus depreciation on the business-use percentage of the cost Straight-line 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

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? Multiple choice question. The business will deduct 3.5 quarters (10.5 months) of depreciation on the truck in the current year. 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-half 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 one-half of a full year's depreciation on the truck in the current year.

True or False: Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

True

True or False: Real property is depreciated using the straight-line method.

True

True or False: The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

True

True or False: The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

True

True or False: used property is eligible for bonus depreciation

True

For assets acquired by gift the asset's tax basis is

a carry over basis

Mid-Quarter Convention

applies when more than 40% of total personal property is placed in service in the LAST quarter of the business's tax year.

Business assets that are often used for both ___ and ___ purposes are referred to as listed property.

business and personal

the section 179 deduction is limited to:

business taxable income before section 179 expense

Section 179 deduction allows small business owners to

immediately deduct up to $1,080,000 of qualified property placed in service in 2022. BEFORE using MACRS

Section 197 intangibles amortization

must be amortized over 180 months regardless of their actual life

What assets do you use depletion on?

natural resources

Is land depreciable?

no

For assets that are used for both personal and business use, if business use is >50%, use __________, if business use is < or equal to 50%, use _________

normal depreciation methods MACRS straight-line depreciation method

Businesses may immediately expense up to $5,000 of _________ _______ and $5,000 of ______-___ ____

organizational costs start-up costs dollar for dollar phase-out beginning at $50,000 so when expenses exceed $55,000 no immediate expense can be taken

Businesses directly purchasing patents/copyrights amortize the cost how?

over the remaining life of the patents or copyrights

Businesses receiving "self-created" patents/copyrights amortize the cost or basis of the self-created intangible assets how?

over their LEGAL lives self-created patent has 17 years MAX self-created copyright has 28 years MAX

Land and buildings are classified as ____ property, while items such as machinery, equipment, and furnishings are classified as tangible, personal property.

real

Intangible property is amortized using what method for book and tax purposes

straight-line method for both

Rex's Wrecks purchased $1,251,000 in new equipment during 2022. 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-$1,080,000; adjusted basis subject to MACRS-$171,000 Reason: The maximum Sec. 179 deduction is $1,080,000. The basis of the asset is reduced by the Sec. 179 amount before applying MACRS or S/L depreciation rates.

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?

$16,400

Pixie's Pizza House, a calendar year corporation, purchased a delivery truck in February for $15,000 (no other assets were purchased that year). How much depreciation will be taken on the truck in the current year if the taxpayer does NOT elect to use Section 179 and does NOT use bonus depreciation?

$3,000 (5 year depreciation, 1st year)

Ethan's Eggroll House, a calendar year corporation, purchased a new computer and printer in January for $1,500. In February, the business purchased a new oven for $1,200. No other assets were purchased during the year. How much depreciation will be taken on these items in the second year of service if the taxpayer does NOT elect to use Section 179 and does NOT use bonus depreciation?

$480 computer $294 oven

Rex's Wrecks purchased $1,650,000 in new equipment (7 year property) during 2022. Rex wants to use Section 179 to expense the maximum amount of the purchase. Assuming no limitations due to net income restrictions, Rex can expense $_____ under Sec. 179, $_____ in bonus depreciation, and $_____ in regular MACRS depreciation (rounded to the nearest dollar).

1,080,000 570,000 0

During the 2022 tax year, businesses may elect to immediately expense up to $ ___ of tangible ________ property placed in service that year under Section 179. For any assets that are completely or partially expensed, the company must reduce the ______ of the asset before computing MACRS depreciation expense.

1,080,000 personal basis

Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year). On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

10,000/30,000 = 33% < 40% so use half-year convention (4th Q assets/total assets) from Half-Year Depreciation Table Computer: 20,000 x 20% = $4,000 Machinery: 10,000 x 14.29% = $1,429 Total = $5,429 depreciation

For the 2022 tax year, taxpayers can elect to immediately expense ____% of qualified property as bonus depreciation. The bonus depreciation is calculated (before/after) ______ the Section 179 expense and (before/after) _____ regular MACRS depreciation.

100% after before

Under Code Section ______ , businesses may elect to immediately expense up to $______ of tangible personal property placed in service during 2022.

179 1080000

Wheeler LLC purchased two assets during the current year (a full 12-month tax year). On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $18,000 and on April 20 placed in service furniture (seven-year property) with a basis of $12,800. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

18,000/30800 = 58.44% > 40% so use mid-quarter convention from Mid-Quarter Depreciation Table Computer: 18,000 x 5% = $900 Furniture: 12,800 x 17.85% = $2,284.8 Total = 3185 (rounded)

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, 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. 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, just Section 179 expense and bonus depreciation taken on the asset 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? Section 179 expensing on the business-use percentage of the cost Bonus depreciation 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

Straight-line depreciation on the business-use percentage of the cost

Choose the items included in the calculation of an asset's adjusted basis. (Check all that apply.) Add accumulated depreciation actually taken on the asset. Subtract prior depreciation allowed or allowable on the asset. Add costs necessary to prepare the asset for use in the business. Start with the asset's original basis. Add additional costs for routine maintenance on the asset. Subtract ordinary repair expenses.

Subtract prior depreciation allowed or allowable on the asset. Add costs necessary to prepare the asset for use in the business. Start with the asset's original basis.

Which of the following items are classified as Section 197 intangibles? (Check all that apply.) Start-up costs Covenants not to compete Trademarks Goodwill

Covenants not to compete Trademarks Goodwill

Which of the following items are needed to calculate MACRS depreciation for an asset? (Check all that apply.) Date placed in service Applicable recovery period Asset's expected usefulness Applicable depreciation method Asset's depreciable basis Asset's condition or age Applicable depreciation convention

Date placed in service Applicable recovery period Applicable depreciation method Asset's depreciable basis Applicable depreciation convention

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.

False Reason: If the automobile depreciation limits apply in the first year, the taxpayer must use the IRS maximum limits for all subsequent years.

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. True false question.

False Reason: If the automobile depreciation limits apply in the first year, the taxpayer must use the IRS maximum limits for all subsequent years.

True or false: Bonus depreciation is only available on new tangible personal property with a recovery period of 20 years or less. It can NOT be taken on used property.

False The requirement for business depreciation is only that the property is "new" to the taxpayer, so that the taxpayer cannot have previously used the specific piece of property. Thus, the property can be used property purchased from another person or business.

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.) For AMT purposes, businesses must depreciate tangible personal property using the 200 percent declining balance method. For AMT, the total AMT depreciation is always added to regular taxable income to calculate the AMT base. 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. Bonus depreciation is deductible for both regular tax purposes and AMT purposes.

For AMT purposes, businesses must depreciate tangible personal property using the 200 percent declining balance method. For AMT, the total AMT depreciation is always added to regular taxable income to calculate the AMT base. Depreciation of real property uses longer recovery periods for AMT purposes than for regular tax purposes.

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.) For AMT purposes, businesses must use the 150 percent declining balance or the straight-line method to depreciate tangible personal property. The allowable recovery periods are longer for all depreciable assets for AMT purposes than for regular tax purposes. For AMT purposes, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. Depreciation of real property is the same for both regular tax purposes and AMT purposes. Section 179 expense is NOT deductible for AMT purposes.

For AMT purposes, businesses must use the 150 percent declining balance or the straight-line method to depreciate tangible personal property. For AMT purposes, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. Depreciation of real property is the same for both regular tax purposes and AMT purposes.

Which of the following statements is correct regarding the depreciable lives of business assets? For tax purposes, GAAP has predetermined estimated lives. For financial accounting, Congress has set recovery periods for various types of assets. For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets. The same recovery period (or estimated life) must be used for tax purposes as for financial accounting purposes. For tax purposes, management can choose the estimated life. For financial accounting, GAAP has set recovery periods for various types of assets.

For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.

Which of the following statements is correct regarding the depreciable lives of business assets? For tax purposes, GAAP has predetermined estimated lives. For financial accounting, Congress has set recovery periods for various types of assets. The same recovery period (or estimated life) must be used for tax purposes as for financial accounting purposes. For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets. For tax purposes, management can choose the estimated life. For financial accounting, GAAP has set recovery periods for various types of assets.

For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.

Which of the following statements is correct regarding the depreciable lives of business assets? The same recovery period (or estimated life) must be used for tax purposes as for financial accounting purposes. For tax purposes, GAAP has predetermined estimated lives. For financial accounting, Congress has set recovery periods for various types of assets. For tax purposes, management can choose the estimated life. For financial accounting, GAAP has set recovery periods for various types of assets. For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.

For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.

Rex's Wrecks purchased $150,000 in new equipment during 2022. 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 $1,080,000 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 $1,080,000.

He can expense the maximum $50,000 in the current year and carry forward $100,000 until next year.

Which of the following assets purchased in the current year are eligible to be expensed under Section 179 assuming the cost does NOT exceed the limitations? (Check all that apply.) New delivery truck Used equipment Storage warehouse New office furniture Land for future building site Apartment complex

New delivery truck Used equipment New office furniture

What are intangible assets?

Not physical-brand names, intellectual property- are high in value

Which of the following calculations is used to determine an asset's adjusted basis? Original basis + depreciation taken - significant improvements Original basis + depreciation allowed or allowable - significant improvements Original basis + ordinary repairs - depreciation taken Original basis + significant improvements - depreciation allowed or allowable

Original basis + significant improvements - depreciation allowed or allowable

Which of the following depreciation provisions are available to listed property that is used more than 50% for business purposes? (Check all that apply.) Section 179 expensing on the business-use percentage of the cost MACRS depreciation on one-half of the total cost MACRS depreciation on the business-use percentage of the cost Section 179 expensing on the total cost Bonus depreciation on the business-use percentage of the 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 calender 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 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 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. The art studio must use the mid-quarter convention for any assets that are not expensed under Section 179.

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.

If a business purchases $3,220,000 in equipment during 2022, what is the impact on the Section 179 election?

The ceiling amount will be reduced by $520,000 to a maximum eligible deduction of $560,000 for the current year.

Mark's Markers purchased a new machine to use in the manufacturing process for $2,500. The sales tax was an additional $150 and the shipping charges were $200. One month after using the machine, a small part broke and needed repair. The cost of the repair was $900. How will Mark's Markers treat the costs for tax purposes?

The cost of $2,850 will be capitalized and depreciated over the asset's life. Repairs of $900 will be expensed immediately.

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 assets will be classified as personal property and the cost will be recovered over 7 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 cost of the assets will be classified as nonresidential property and recovered over 39 years.

The cost of the assets will be classified as nonresidential property and recovered over 39 years.

Janet owns land that she uses in her business. Which of the following statements is correct regarding the land? 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, but it can NOT be depreciated, even though 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 personal-use property, and it can NOT be depreciated because it is not 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 real property, but it can NOT be depreciated, even though it is a business asset.

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 must be depreciated using the same method as the previously purchased machinery. 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 can be depreciated using the same method or a different method than the previously purchased machinery.

When does a business have to use the mid-quarter convention?

When more than 40% of the tangible personal property purchased is placed in service during the fourth quarter of the year

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

after before

Section 179 expense is

an immediate expensing incentive designed to help small businesses purchasing qualified property

What is the formula for an asset's adjusted basis?

asset's initial basis - accumulated depreciation

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. (Enter only one word per blank.)

business income carry forward

The amount of depletion that can be taken on an annual basis is the larger of the amounts computed under the ____ depletion method or the _______ depletion method

cost percentage

The cost recovery of the capital investment in natural resources is referred to as

depletion

Which of the following assets are generally referred to as listed property? (Check all that apply.) Office desk Digital cameras Manufacturing equipment Automobiles Office furniture

digital cameras automobiles

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

Which one of the following assets is generally NOT referred to as listed property? Digital cameras Automobiles Filing cabinet Airplane

filing cabinet

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

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? Tax accounting only Both financial and tax accounting Financial accounting only

financial accounting only

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

The ______-______ convention allows 50% of a full year's depreciation in the year the asset is placed in service, regardless of when it was actually placed in service.

half-year

What assets do you use amortization on?

intangible assets

Real property is classified in one of three ways: ________, which is NOT depreciable; _________ rental property, which is used as dwelling units by lessees; or ___________ property.

land residential nonresidential

What is real property?

land, buildings, and other structures, also improvement on land

Business assets that are often used for both business and personal purposes are referred to as _______ property

listed

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

Real property uses _____-______ convention and is depreciated using the ______-_______ method

mid-month straight-line

Which of the following options is NOT a category for intangible assets? Start-up expenditures and organizational costs Section 197 purchased intangibles Natural resources Patents and copyrights Research and experimentation costs

natural resources

Costs incurred prior to the starting of a business, or shortly thereafter that relate to creating the business entity, are referred to as:

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

For tax purposes, as asset's recovery period is

pre-determined by the IRS in the Revenue Procedure 87-56

half-year convention

record one-half of a full year's depreciation in the year of acquisition and another half year in the year of disposal.

Similar assets purchased in the same year must be depreciated using the ______same/different) depreciation method, but similar assets purchased in different years can be depreciated using _______(same/different) depreciation methods.

same different

When depreciating real property under MACRS, the recovery rates are based on the ____-____ method.

straight-line

When depreciating real property under MACRS, the recovery rates are based on the _____ - ______ method

straight-line

When depreciating real property under MACRS, the recovery rates are based on which of the following methods? Straight-line 200% declining balance 150% declining balance

straight-line

What is personal property?

tangible assets such as equipment and machinery

What assets do you use depreciation on?

tangible personal and real property (except land)

For assets acquired by inheritance, the asset's tax basis is generally

the FMV of the asset on the transferor's date of death

For personal assets that are converted to business use, the tax basis is

the lesser of the cost basis or the FMV of the asset on date of conversion

What is the recovery period for patents that have been purchased by a business (not as part of an acquisition of another entire business)?

the remaining legal life of the patent at time of purchase

For assets acquired through tax-deferred transactions, the asset's tax basis is

the same basis the taxpayer had in the property the taxpayer transferred

For financial accounting purposes, an asset's recovery period is based on

the taxpayer-determined estimated useful life