ch 10

Question 1

cost basis

Answer 1

prevents double taxation of the same economic benefit

Question 2

adjusted basis

Answer 2

represents remaining after-tax investment a taxpayer has in property. Cost basis-accumulated depreciation

Question 3

de minimus safe harbor election

Answer 3

2500 or 5000 (if taxpayer files SEC fstmts) per item, may be expensed immediately

Question 4

asset-related expenses

Answer 4

keep asset in good working order over original useful life

Question 5

routine maintenance

Answer 5

expense in the current period: put the asset in new, better state or improve the asset/increase productive output

Question 6

costs that significantly extend useful life

Answer 6

capitalize and treat as a new asset

Question 7

cost recovery

Answer 7

depreciation, amortization, and depletion

Question 8

cost recovery deductions are allowed if

Answer 8

1. asset used in a trade or busn or held for production of income
2. determinable useful life
3. useful life exceeds 1 year

Question 9

major types of assets for cost recovery

Answer 9

tangible, intangible, and natural resources

Question 10

tangible assets

Answer 10

real and personal property- depreciate plus section 179 plus bonus depreciation

Question 11

intangible assets

Answer 11

goodwill, covenants not to compete, etc. Amortize. Section 197- 180 months amortization

Question 12

natural resources

Answer 12

oil, gold, etc, deplete. Cost depletion vs percentage depletion

Question 13

multiple assets

Answer 13

purchased at same time- Basket purchase (building and land)

Question 14

land

Answer 14

not depreciable

Question 15

building

Answer 15

27.5 or 39 years

Question 16

land and building

Answer 16

3rd party estimate- appraisal or use property tax reduction. Ratio or % of land to building value

Question 17

special basis situations

Answer 17

• convert an asset from personal use to business use
• appreciated assets received as a gift
• inherited property

Question 18

convert an asset from personal use to business use

Answer 18

Basis is the lesser of 1. cost basis or 2. FMV of property on date of conversion

Question 19

appreciated assets received as a gift

Answer 19

carryover basis

Question 20

inherited property

Answer 20

stepped up basis: FMV at date of death

Question 21

bonus depreciation

Answer 21

applies to new and used assets, generally to assets with a recovery period of less than 20 years. 100% bonus depreciation reduced by 2027

Question 22

depreciable basis

Answer 22

cost basis less section 179 expense

Question 23

depreciation method

Answer 23

assume MACRS

Question 24

convention

Answer 24

half year or mid quarter (personal property) or mid month (real property)
- affects the 1st year of depreciation and the year of disposition

Question 25

MACRS

Answer 25

personal property: 200% declining balance

real property: straight line

Question 26

alternative depreciation system

Answer 26

used for AMT

Question 27

recovery period

Answer 27

personal property and real property

Question 28

conventions

Answer 28

depends on the type of property

Question 29

half-year convention