ITX - 37 Flashcards by Anonymous Student

Typical Recovery Periods for Asset Classes:

Autos, most trucks, computers

5-year

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Typical Recovery Periods for Asset Classes:

Office furniture and equipment (except computers), most machinery

7-year

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Typical Recovery Periods for Asset Classes:

Residential rental property

27.5-year

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Typical Recovery Periods for Asset Classes:

Nonresidential real property

39-year

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Typical Recovery Periods for Asset Classes:

Land improvements

15-year

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___ is the taxpayer’s investment in property

Basis

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The original basis in property is usually the taxpayer’s ___.

cost

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The basis will include payments made to acquire the property, such as ___.

commissions
advertising
SALES TAX
legal fees

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Basis is adjusted ___ when a taxpayer takes depreciation deductions.

downward

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Basis is adjusted downward when a taxpayer takes ___.

depreciation deductions

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Basis is adjusted ___ when the taxpayer makes improvements to the property.

upward

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Basis is adjusted upward when the taxpayer makes ___ to the property.

improvements

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Basis: Non-related party purchase

Cost plus expenses of sale

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Basis: Gifts

Donor’s basis is increased by the gift tax paid by the donor on appreciation (Except: if sold for a loss, FMV on the date of the gift, when less than donor’s basis)

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Basis: Inherited assets

The FMV on date of death (or the 6-month alternate valuation date)

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Basis: Assumption of debt

The buyer includes any debt assumed in the purchase price in his or her original basis

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Basis: Improvements to tangible assets

Cost of improvements added to basis

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Basis: Basket purchase (i.e., building and various land)

Purchase price is allocated to assets according to their relative FMV

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Basis: Converted from personal use

Cost or FMV at conversion, whichever is less

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Repairs are expensed by the taxpayer: therefore, the property’s basis ___.

does not increase

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___ is allowed for recovery of the cost of assets purchased for use in a trade or business (including rental activities).

Depreciation

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___ is allowed for the recapture of the cost of certain intangible assets.

Amortization

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Original Issue Discount (OID): When clients purchase certain securities that will mature and pay back a maturity value greater than the amount paid, they will have a certain amount of interest ___ into current income, even though they have not received it.

imputed

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Original Issue Discount (OID): Imputed interest will ___ the client’s basis in the asset and ___ any capital gain on the sale or maturity of the asset.

increase

reduce

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Taxpayers who buy bonds at a discount will receive more than what they paid for the bonds when they mature and will have to pay taxes on a ___ amount each year they hold the bond. This imputed interest will ___ the client's basis in the asset and ___ the capital gain on the sale of the asset.

pro-rata increase reduce

If a taxpayer pays a premium for a bond, he or she has the option of ___ the bond premium over the years remaining until maturity or including the bond premium as part of ___. If the taxpayer elects to ___ the bond premium, the amount of interest income reported each year from the coupon payments will ___.

amortizing basis amortize decrease

When property is contributed to a controlled corporation or partnership in return for stock in the corporation or in return for a partnership interest, the partner's or shareholder's basis is ___ to the corporation or partnership.

carried over

___ basis refers to the basis in property acquired by gift because the donor's basis is carried over to the donee.

Carryover

Those assets included in taxable estate of a decedent and distributed by the estate receive a ___ in basis. The receivers of these bequests receive a basis in those assets equal to ___.

step-up | the FMV at the date of death or six months after death

The general rule is that property owned jointly by a decedent and another person (not a spouse) is included in its entirety in the estate of the decedent unless the executor of the estate can show that the surviving joint owner ___.

contributed part or the entire purchase price

Property jointly owned by spouses: When one spouse dies, one-half of the property owned jointly with the other spouse is included in the estate of the ___, and thus the surviving spouse receives a ___ in basis for half of the assets.

first to die | step-up

Community-property state: If at least ___ of the property is included in the estate of the first to die, the second spouse will receive a step-up in basis for __ of the community property.

half | all (not half)

All assets acquired by a client in a given year are treated as being acquired by __. A half-year of depreciation is taken in the year of ___, and a half-year in the year of ___. The half-year requires convention requires only ___% depreciation in the first year.

July 1 acquisition disposition 10%

When a client acquires more than 40% of the total property acquired (27.5- and 39-year property ignored) in the fourth quarter, the ___ convention applies.

mid-quarter

All realty (27.5- and 39-year property) is depreciated using the ___ convention in the year of acquisition.

mid-month

Property that is a 3-, 5-, 7-, 10-year property is depreciated using the ___ method, switching to ___ when it will result in higher depreciation.

double-declining method (DDM) | straight -line

Formula for Depreciation (DDM)

(Original basis less prior depreciation/Useful life) x 2

15- and 20-year property is depreciated when using the ___ method, switching to ___ when it will result in higher depreciation.

150%-declining method | straight-line

Formula for Depreciation (150%)

(Original basis less prior depreciation/Useful life) x 1.5

27.5- and 39-year property use the ___ method.

straight-line method

Formula for Depreciation (SL)

Original basis/Useful life

If business-use of any listed asset is less than 100%, limits are multiplied by ___.

the business-use percentage

If the business use of any listed asset is less than 50% (production of income does not count), then the asset must be depreciated using the ___ method over a longer useful life. If the business use begins above 50% but drops to less than 50% in subsequent years, the ___ depreciation taken in earlier years must be ___.

straight-line accelerated recaptured

When a cost is incurred to lengthen the useful life or increase the market value of an asset, this cost is considered a betterment and must be ___ to the cost of the asset and ___ over its life.

added | depreciated

If the cost is incurred only to bring the asset back to its normal use, then it is considered a ___ and can be ___, to reduce current income.

repair | expensed

___ accelerates the depreciation of most assets into the early years of use.

MACRS

A business acquiring assets other than real estate can expense $___ of business-use tangible personal property in the same year as it is placed in service.

$25,000

A business can deduct Section 179 depreciation only to the extent of?

its income for the year the assets was acquired

No ___ can be created or increased by Section 179. Any Section 179 depreciation that is disallowed because of ___ can be carried forward to future years.

loss | insufficient income

Section 179 is not available to ___ property, and it is limited for ___.

rental | automobiles

For ___, the Section 179 deduction passes through to the owners.

partnerships and S corporations

Bonus depreciation: The amount deductible was ___% of the asset's basis after subtracting any Section 179 expense used to reduce the asset's basis. Bonus is available for assets with a useful life of less than ___ years.

50% | 20 years

Regular MACRS depreciation is calculated on the basis remaining after the ___% bonus is subtracted.

50%

Bonus depreciation for the following property: ?

1) Property with a useful life of less than 20 years 2) Water utility property 3) Off-the-shelf computer software 4) Qualified leasehold property

___ describes the cost recovery for an intangible asset over the life of that asset.

Amortization

Two classes of amortization: 1) first class is amortized over __ months; 2) second class is amortized over ___ year period.

60 months | 15-year

First class amortization includes?

``` research and experimental cost organizational costs (legal and accounting fees) ```

Second class amortization includes?

``` goodwill franchises trademarks start-up expenditures government-granted licenses ```

Taxpayers may elect to deduct the first $___ of start-up expenditures in their first year of business. If the total start-up expenditures exceed $___, this $___ election is reduced dollar-for-dollar. All remaining expenses are amortized over the ___ period, starting with the first month of business

$5,000 $50,000 $5,000 15-year period or 180-month

Taxpayers can claim ___ expense related to the exhaustion of natural resources, including oil wells, coal mines, and timberlands.

depletion