Chapter 10 Flashcards
What is the cost recovery method for recovering the cost of personal property?
Depreciation
What is the cost recovery method for recovering the cost of real property?
depreciation
What is the cost recovery method for recovering the cost of intangible assets?
amortization
What is the cost recovery method for recovering the cost of natural resources?
depletion
When are the special rules and changes (section 179 & bonus depreciation) covered?
They are covered AFTER the basic depreciation rules.
What is personal-use property?
is any property (realty or personalty) that is held for personal use rather than for use in a trade or busa
Depreciation expense deductions are not allowed for 100% personal-use assets.
TRUE
What needs to be known to compute MACRS depreciation for an asset?
- asset’s initial basis
- date placed in service
- applicable depreciation method
- asset’s recovery period
- applicable depreciation convention
Is depreciation allowed for assets placed in service and disposed of in the same year?
NO
What are some common examples of personalty property?
machinery, equipment, furniture, computers, automobiles
What convention do you use if your personalty property was place in service during the last quarter of the year?
Mid-quarter
What convention do you use if more than 40% of personalty property was place in service during the last quarter of the year?
Mid-quarter
What is residential realty?
consists of dwelling units such as houses, condominiums, and apartment complexes
What is Nonresidential realty?
consists of all other buildings (office bldgs, manufacturing facilities, shopping malls)
Is land depreciable?
NO
What convention does realty property use?
Mid-month
Why did law makers create Section 179 expense?
it was created as an incentive to help small busa’s purchasing NEW or USED tangible personal property
Do businesses ELECT to immediately expense their tangible personal property or is it AUTOMATIC?
They ELECT IN.
What is the maximum amount businesses are allowed to expense?
$1,220,000
with a phase-out for tangible personal property placed in service OVER $3,050,000
When choosing between multiple assets to apply Section 179, depreciation is maximized by applying it to the _______life assets first.
LONGER
Section 179 can create a loss.
FALSE
What % of the cost of qualifying assets under “bonus depreciation” is immediately deductible?
60%
Do businesses ELECT to immediately expense bonus depreciation or is it AUTOMATIC?
Automatic, taxpayers may ELECT OUT by attaching a statement to the tax return
Bonus depreciation is a temporary provision and the percentage
phases down after 5 years
TRUE
What is qualifying property?
- can be new or used property
- have an IRS depreciation life of 20 years or less
- computer software
Luxury Automobile Limitations apply to what type of vehicles?
passenger auto weighing </= 6,000 lbs
What vehicles are NOT included in Luxury Automobile Limitations?
large SUVs, delivery trucks, delivery vans,
taxi cabs, limousines, and hearses
What is the process for applying the Luxury Automobile Limitations/
(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)
Are taxpayers allowed to use Section 179 on “luxury autos”?
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
Are taxpayers allowed to use bonus
depreciation on “luxury autos”?
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)
Are taxpayers allowed to use Section 179 on large SUVs?
Yes, taxpayers may take Section 179 expense on large SUVs of up to $30,500 in the year of acquisition (2024)
What are common examples of costs incurred VEFORE the business activity begins?
- costs associated with investigating the possibility of or creating an actual business
- marketing reports
- architectural surveys
- legal services
- accounting services
A business can immediately expense up to ________ of start up expenses.
$5,000
There is a dollar-for-dollar reduction in the immediate expense amount in EXCESS of $50,000.
TRUE
Any costs not immediately expenses are ______ using the straight-line method over a recovery period of _______.
amortized; 180 months
