Chapter 10

Question 1

What is the cost recovery method for recovering the cost of personal property?

Answer 1

Depreciation

Question 2

What is the cost recovery method for recovering the cost of real property?

Answer 2

depreciation

Question 3

What is the cost recovery method for recovering the cost of intangible assets?

Answer 3

amortization

Question 4

What is the cost recovery method for recovering the cost of natural resources?

Answer 4

depletion

Question 5

When are the special rules and changes (section 179 & bonus depreciation) covered?

Answer 5

They are covered AFTER the basic depreciation rules.

Question 6

What is personal-use property?

Answer 6

is any property (realty or personalty) that is held for personal use rather than for use in a trade or busa

Question 7

Depreciation expense deductions are not allowed for 100% personal-use assets.

Answer 7

TRUE

Question 8

What needs to be known to compute MACRS depreciation for an asset?

Answer 8

• asset’s initial basis
• date placed in service
• applicable depreciation method
• asset’s recovery period
• applicable depreciation convention

Question 9

Is depreciation allowed for assets placed in service and disposed of in the same year?

Answer 9

NO

Question 10

What are some common examples of personalty property?

Answer 10

machinery, equipment, furniture, computers, automobiles

Question 11

What convention do you use if your personalty property was place in service during the last quarter of the year?

Answer 11

Mid-quarter

Question 12

What convention do you use if more than 40% of personalty property was place in service during the last quarter of the year?

Answer 12

Mid-quarter

Question 13

What is residential realty?

Answer 13

consists of dwelling units such as houses, condominiums, and apartment complexes

Question 14

What is Nonresidential realty?

Answer 14

consists of all other buildings (office bldgs, manufacturing facilities, shopping malls)

Question 15

Is land depreciable?

Answer 15

NO

Question 16

What convention does realty property use?

Answer 16

Mid-month

Question 17

Why did law makers create Section 179 expense?

Answer 17

it was created as an incentive to help small busa’s purchasing NEW or USED tangible personal property

Question 18

Do businesses ELECT to immediately expense their tangible personal property or is it AUTOMATIC?

Answer 18

They ELECT IN.

Question 19

What is the maximum amount businesses are allowed to expense?

Answer 19

$1,220,000
with a phase-out for tangible personal property placed in service OVER $3,050,000

Question 20

When choosing between multiple assets to apply Section 179, depreciation is maximized by applying it to the _______life assets first.

Answer 20

LONGER

Question 21

Section 179 can create a loss.

Answer 21

FALSE

Question 22

What % of the cost of qualifying assets under “bonus depreciation” is immediately deductible?

Answer 22

60%

Question 23

Do businesses ELECT to immediately expense bonus depreciation or is it AUTOMATIC?

Answer 23

Automatic, taxpayers may ELECT OUT by attaching a statement to the tax return

Question 24

Bonus depreciation is a temporary provision and the percentage
phases down after 5 years

Answer 24

TRUE

Question 25

What is qualifying property?

Answer 25

- can be new or used property - have an IRS depreciation life of 20 years or less - computer software

Question 26

Luxury Automobile Limitations apply to what type of vehicles?

Answer 26

passenger auto weighing

Question 27

What vehicles are NOT included in Luxury Automobile Limitations?

Answer 27

large SUVs, delivery trucks, delivery vans, taxi cabs, limousines, and hearses

Question 28

What is the process for applying the Luxury Automobile Limitations/

Answer 28

(1) Compute regular MACRS depreciation (2) Compare regular MACRS depreciation to the MAX depreciation amount for the 1st yr of the recovery period (3) Deduct the LESSER of (1) & (2)

Question 29

Are taxpayers allowed to use Section 179 on "luxury autos"?

Answer 29

Yes, but the luxury auto limit is $12,400 for 2024 and this limit applies regardless of whether the taxpayer claims regular MACRS depreciation or Section 179 depreciation on the auto

Question 30

Are taxpayers allowed to use bonus depreciation on “luxury autos”?

Answer 30

Yes, but the luxury auto limits still apply. With bonus depreciation there is a special increase in the limit for the 1st year of $8,000 (so total would be $20,400)

Question 31

Are taxpayers allowed to use Section 179 on large SUVs?

Answer 31

Yes, taxpayers may take Section 179 expense on large SUVs of up to $30,500 in the year of acquisition (2024)

Question 32

What are common examples of costs incurred VEFORE the business activity begins?

Answer 32

- costs associated with investigating the possibility of or creating an actual business - marketing reports - architectural surveys - legal services - accounting services

Question 33

A business can immediately expense up to ________ of start up expenses.

Answer 33

$5,000

Question 34

There is a dollar-for-dollar reduction in the immediate expense amount in EXCESS of $50,000.

Answer 34

TRUE

Question 35

Any costs not immediately expenses are ______ using the straight-line method over a recovery period of _______.

Answer 35

amortized; 180 months