Chapter 10 Questions Flashcards
3-year Property Class
Horses, hogs, tractors, tools, software
5-year Property Class
Cars, trucks, computers, cattle, copiers
7-year Property Class
Furniture, machinery
10-year Property Class
Fruit-bearing trees, barges, tugboats
15-year Property Class
Pipelines, billboards, sidewalks, bridges
20+ year Property classes
Farm buildings, residential buildings, factories
Straight-Line Recovery Method
Software (3-year property)
Residential real estate (27.5-year property)
Nonresidential real estate (39-year property)
200% Declining Balance Recovery Method
Most
3-yr (33.33%, 44.45%, 14.81%, 7.41%)
5-yr (20%, 32%, 19.20%, 11.52%, 11.52%, 5.76%)
7-yr (14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92% 8.93%, 4.46%)
10-yr (…)
150% Declining Balance Recovery Method
Most 15- and 20- year property
Half-Year Cost Recover Convention
For 20-year and shorter property, 6 months of depreciation is taken for the 1st year, no matter when the property was placed
Mid-Quarter Cost Recover Convention
If >40% of a year’s property is placed in the 4th quarter, all of that year’s Half-Year property becomes Mid-Quarter property
The amount of depreciation taken depends on the quarter the property was placed
Mid-Month Cost Recover Convention
Applies to real estate. The amount of depreciation taken depends on the month the property was placed
Depreciation in real estate buildings and land can be deducted.
False. Depreciation cannot be taken on land.
The concept of salvage value does not apply to property put into service since 1981.
True. Salvage value does not apply to ACRS and MACRS.
The declining balance methods (vs. the straight-line method) create larger tax savings in the short term.
True. This method front-loads tax savings to the short term.
Automobiles are generally categorized into the 10-year property class.
False. Automobiles are generally 5-year property.
Depreciation recapture allows sellers to recognize a greater proportion of property as tax-favorable capital gains.
False. Recaptured depreciation is taxed as ordinary income.
A business could elect to expense a newly purchased office building, rather than taking depreciation deductions using the straight-line method.
False. Such a large capital expenditure could not be expensed.
A business cannot deduct losses from the gradual decline in value of trademarks or patents.
False. While these intangible assets don’t “depreciate”, their gradual decline in value is allowed to be taken as a tax loss.
A business that puts into service 50% of this year’s property in December is able to deduct a half-year of depreciation on that property this year.
False. This business must use a mid-quarter or even mid-month method.
