CPE Depreciation Sept 2020 Surgent

Question 1

Capitalization

Answer 1

Code section 263. Reg 263.

Question 2

Landmark Cost Segregation court case

Answer 2

Hospital Corporation of America vs. Commissioner

Question 3

Court case on reasonable capitalization policy useage

Answer 3

Alacare Home Health Care vs. Commissioner

Question 4

Court case on reasonable capitalization policy useage

Answer 4

Alacare Home Health Care vs. Commissioner

Question 5

What do we depreciate?

Answer 5

Capital expenditures used in sect 168 (not capital assets)

Question 6

Section 179 Expense (election to expense)

Answer 6

Immediate expense deduction business owners take for purchases of depreciable business equipment, instead of capitalizing it

Question 7

Qualifying Property (for Section 179)

Answer 7

1. Property must be purchased
2. Predominate business use of more than 50%
3. Excludes investment property
4. Excludes property held by estate/trust/tax-exempt/passive activity

Question 8

Section 168

Answer 8

Taxpayer’s trade or business, or production of income

Question 9

Capital Expenditures Section 263

Answer 9

Amount paid for new buildings, permanent improvements, or restoration. Adds value, adapts to a new use, or substantially prolongs the useful life.

Question 10

Depreciable Assets (3)

Answer 10

(1) Tangible personal property
(2) Intangible property (copyrights, patents, computer software)
(3) Intangible assets (goodwill, covenant not to compete)

Question 11

Basic requirements for property to be depreciable (5)

Answer 11

1. Hold title
2. Use in business or income-producing activity
3. Have a determinable useful life
4. Expected to last more than one year
5. Not be “excepted property”

Question 12

Basis is depreciable property

Answer 12

Cost plus related amounts (include freight, sales tax, installation and testing fees, etc)

Question 13

Are Section 179 deductions based on the tax year, or the calendar year, that the item is placed in service?

Answer 13

Tax year.

Question 14

QIP

Answer 14

Qualified Improvement Property. Any improvement to interior of nonresidential real property building, if date of improvement placed in service is after building was placed in service. Cannot include building enlargement, elevator/escalator, internal structural framework of building.

Question 15

Qualified Real Property added by TCJA of 2017

Answer 15

Improvements to nonresidential real property:

• roofs
• HVAC
• fire protection/alarms
• security systems

Question 16

Form 4562

Answer 16

Part 1: Section 179 Expense Election

Parts 2&3: Depreciation and MACRS

Question 17

How to elect Section 179 expense?

Answer 17

Fill out lines 1-13 of Form 4562

Question 18

Maximum Section 179 expense for 2020 (Overall Limit)

Answer 18

$1,040,000. Must be reduced dollar-for-dollar by excess of purchase over Acquisition Limit

Question 19

Acquisition Limit of 179 expense for 2020

Answer 19

$2,590,000

Question 20

Taxable Income (Trade or Business Income) Limitation

Answer 20

Limits Section 179 deduction to taxable income (add back shareholder wages). Section 179 over this limitation CAN be carried forward.

Question 21

Can unused Section 179 be carried forward?

Answer 21

YES if limited by Taxable Income Limitation. NO if limited by Overall Limit of $1.04 million (2020)

Question 22

Tax Benefit Rule

Answer 22

Can be used in case of exceeding Overall Limit of Section 179 and not being able to use it all. Can subtract excess amounts from basis WHEN SELLING item.

Question 23

Can you decide to elect Section 179, but only a certain amount, and depreciate the rest?

Answer 23

Yes. Good tactic if you are going to exceed Overall Limit of Section 179/

Question 24

Can a pass-through entity take Section 179 and report on a loss, on the K-1?

Answer 24

Yes, because trade/business income requires a modification (shareholder wages) for Section 179 purposes. So you can have both.

Question 25

Section 168(k)

Answer 25

Bonus Depreciation (also called Additional First Year Depreciation)

Question 26

What is the last year of 100% Bonus Depreciation under the TCJA?

Answer 26

2022 (but likely to be extended due to Covid)

Question 27

How did the TCJA change the type of property eligible for bonus depreciation/168k?

Answer 27

TCJA allowed used property purchased to be eligible for bonus. Prior, it had to be new.

Question 28

CARES Act

Answer 28

Coronovirus Aid, Relief, and Economic Security Act

Question 29

CARES Act technical correction to depreciation

Answer 29

Allowed QIP to be included as 15 year property under Sect 168(e)(3)(E), allowing it to be eligible for bonus depreciation. Effective for property placed in service after 12/31/17.

Question 30

Qualified Sect 168k (Bonus Depreciation) Property

Answer 30

1. New (now new or used) 2. Tangible property 3. Depreciated under MACRS 4. Recovery period of 20 years or less

Question 31

(T/F) You must elect Section 179 if you want to use it.

Answer 31

True.

Question 32

(T/F) You must elect Section 168k/Bonus Depreciation if you want to use it.

Answer 32

False. You are required to take it by default. You must elect OUT of it if you don't want to use it. You must elect out of an entire class. Cannot be revoked.

Question 33

Rev Proc 2020-25

Answer 33

Allows you to revoke election out of Bonus Depreciation (before this Rev Proc, could not revoke)

Question 34

Property Excluded from 168(k)

Answer 34

1. Listed property used 50% or less for business 2. Any property required to be depreciated under ADS 3. Property placed in service/disposed of same year 4. Property converted from business>personal use. Property personal>business use in the same year may qualify.

Question 35

MACRS Depreciation Options (4)

Answer 35

1. 200 DB 2. 150 DB (must use for AMT) 3. Straight Line MACRS Recovery Period 4. Straight Line over ADS life

Question 36

MACRS Recovery Periods (6 for tangible personal property, 2 for tangible real property)

Answer 36

1. TPP: 3/5/7/10/15/20 | 2. TRP: 27.5 & 39

Question 37

Leasehold Improvements

Answer 37

Not the same as QIP; could include items like elevators or structural improvements.

Question 38

ADS

Answer 38

Alternative Depreciation System

Question 39

Listed Property

Answer 39

Automobiles, any property used as means of transportation, property used for entertainment or recreation

Question 40

What type of listed property did the TJCA remove?

Answer 40

Computer or peripheral equipment

Question 41

Rev Proc 2019-13 Safe Harbor

Answer 41

Corrects technical issue that forced luxury automobile depreciation to 14+ years, back down to 5 years. Does NOT apply combined with Section 179.

Question 42

Form 4797

Answer 42

``` Part 1: Capital gain/loss Part 2: Ordinary gain/loss Part 3: - 1245 Personal Property - 1250 Real Property - 1231 Other Business Property (includes 1252/1254/1255) ```

Question 43

1231 Property

Answer 43

Property used in trade/business held more than a year

Question 44

Best Case for Ordinary/Capital Gain/Loss

Answer 44

Prefer Ordinary Loss over Capital Loss. Prefer Capital Gain over Ordinary Gain.

Question 45

Net 1231 Losses Convert to ____ Loss

Answer 45

Ordinary

Question 46

Net 1231 Gains Convert to _____ Gain

Answer 46

Capital