Depreciation

Question 1

What are the 2 types of property that uses MACRS depreciation?

Answer 1

Real property (1250) and tangible personal property (1245).

Question 2

What is real property?

Answer 2

Land and anything permanently affixed to land.

Question 3

What are the recovery periods of real property?

Answer 3

27.5 years for residential and 39 years for commercial.

Question 4

Is land depreciable?

Answer 4

No b/c we assume land lives forever.

Question 5

How is real property depreciated?

Answer 5

S/L with a mid-month convention. 1/2 depreciation in first month and 1/2 in the last month.

Question 6

What tangible real property uses S/L?

Answer 6

OTS software

Question 7

How much is depreciated in the first year of real property?

Answer 7

11 1/2 months.

Question 8

How is tangible personal property depreciated?

Answer 8

DBB for 3/5/7 years and 150% for 15/20 years with a 1/2 year convention.

Question 9

When would the mid-quarter convention be used?

Answer 9

When 40% or more of the assets were purchased in the last quarter of the year.

Question 10

What depreciation method is used for intangibles?

Answer 10

S/L amortization

Question 11

What are the 3 types of assets that may be held by a taxpayer?

Answer 11

Ordinary income assets, 1231 assets, and capital assets.

Question 12

How is the sale of a 1231 asset recorded?

Answer 12

An ordinary loss or a capital gain.

Question 13

How are non-business bad debt write offs treated?

Answer 13

Always as a ST capital loss.

Question 14

How are inherited assets treated?

Answer 14

Always considered LT.

Question 15

What is the maximum section 179 deduction?

Answer 15

$1M and is reduced dollar for dollar for any asset that is in excess of $2.5M.

Question 16

How much is bonus depreciation?

Answer 16

100% of the property after taking into account 179 depreciation.

Question 17

What is always a short-term capital loss?

Answer 17

Non-business bad debt write offs.

Question 18

What qualifies for double declining balance (200%)?

Answer 18

3, 5, 7, and 10 year property.

Question 19

What are 3 year property?

Answer 19

Small tools and OTS software.

Question 20

What are 5 year property?

Answer 20

Cars, light trucks, copiers, computers, and printers.

Question 21

What are 7 year property?

Answer 21

Equipment, office furniture, most other personal property.

Question 22

What qualifies for 150% declining balance?

Answer 22

15 and 20 year property.

Question 23

What qualifies as an intangible?

Answer 23

Acquired goodwill, franchises, trademarks, covenant not to compete, and customer-based intangibles.

Question 24

How are intangibles depreciated?

Answer 24

15 years S/L and $5k can be expensed immediately as an organization expense.

Question 25

What are the requirements of depreciating under Section 179?

Answer 25

The property must be purchased for use in the taxpayer’s active trade or business and must be purchased from an unrelated party.

Question 26

What type of equipment qualifies for bonus depreciation?

Answer 26

New or used equipment.

Question 27

Who does the unicap rules apply to?

Answer 27

Retailers w/avg gross receipts of $25M for the last 3 years.

Question 28

Who are considered related parties?

Answer 28

Husband/wife, sister/brother, parent/child, grandparent/grandchild, ancestor/dependent, majority shareholder/corporation, and majority partner/partnership

Question 29

Who are not considered related parties?

Answer 29

Aunts, uncles, cousins, nephews, nieces, and in-laws.

Question 30

Are losses to related parties deductible?

Answer 30

Losses to related parties are not deductible.

Question 31

What losses are recognized in a wash sale?

Answer 31

No losses are recognized in a wash sale, but is added back to the basis.

Question 32

What are capital assets?

Answer 32

All assets that are not ordinary or 1231 assets

Question 33

What are ordinary assets?

Answer 33

Inventory, business receivables, self-created art, asses used in a business for 1 year or less

Question 34

What are 1231 assets?

Answer 34

Depreciable/amortizable business assets or land over 1 year

Question 35

When is gain recognized in a like-kind exchange?

Answer 35

The lower of: 1) gain realized OR 2) total boot received, including net relief of liabilities

Question 36

What is the basis in new property in a like-kind exchange?

Answer 36

The FMV of the new property less any unrealized gain

Question 37

What are the involuntary conversion periods?

Answer 37

2 years for destruction/theft of property resulting in insurance recovery; 3 years for gov't condemnation or eminent domain; 4 years for federally declared disasters