Chapter 10 Questions

Question 1

3-year Property Class

Answer 1

Horses, hogs, tractors, tools, software

Question 2

5-year Property Class

Answer 2

Cars, trucks, computers, cattle, copiers

Question 3

7-year Property Class

Answer 3

Furniture, machinery

Question 4

10-year Property Class

Answer 4

Fruit-bearing trees, barges, tugboats

Question 5

15-year Property Class

Answer 5

Pipelines, billboards, sidewalks, bridges

Question 6

20+ year Property classes

Answer 6

Farm buildings, residential buildings, factories

Question 7

Straight-Line Recovery Method

Answer 7

Software (3-year property)

Residential real estate (27.5-year property)

Nonresidential real estate (39-year property)

Question 8

200% Declining Balance Recovery Method

Answer 8

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 (…)

Question 9

150% Declining Balance Recovery Method

Answer 9

Most 15- and 20- year property

Question 10

Half-Year Cost Recover Convention

Answer 10

For 20-year and shorter property, 6 months of depreciation is taken for the 1st year, no matter when the property was placed

Question 11

Mid-Quarter Cost Recover Convention

Answer 11

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

Question 12

Mid-Month Cost Recover Convention

Answer 12

Applies to real estate. The amount of depreciation taken depends on the month the property was placed

Question 13

Depreciation in real estate buildings and land can be deducted.

Answer 13

False. Depreciation cannot be taken on land.

Question 14

The concept of salvage value does not apply to property put into service since 1981.

Answer 14

True. Salvage value does not apply to ACRS and MACRS.

Question 15

The declining balance methods (vs. the straight-line method) create larger tax savings in the short term.

Answer 15

True. This method front-loads tax savings to the short term.

Question 16

Automobiles are generally categorized into the 10-year property class.

Answer 16

False. Automobiles are generally 5-year property.

Question 17

Depreciation recapture allows sellers to recognize a greater proportion of property as tax-favorable capital gains.

Answer 17

False. Recaptured depreciation is taxed as ordinary income.

Question 18

A business could elect to expense a newly purchased office building, rather than taking depreciation deductions using the straight-line method.

Answer 18

False. Such a large capital expenditure could not be expensed.

Question 19

A business cannot deduct losses from the gradual decline in value of trademarks or patents.

Answer 19

False. While these intangible assets don’t “depreciate”, their gradual decline in value is allowed to be taken as a tax loss.

Question 20

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.

Answer 20

False. This business must use a mid-quarter or even mid-month method.