Chapter 11 MC

Question 1

Which of the following statements concerning the conventions used for calculating depreciation in the year an asset is placed in service is correct?

Answer 1

A “midquarter” convention applies if more than 40 percent of all property placed in service by a taxpayer during the year and otherwise qualifying for the “half-year” convention is placed in service during the last 3 months of the taxable year.
is incorrect because 5-year property is subject to a “half-year” convention. (B) is incorrect because the convention does apply in the year in which the property is disposed of. (D) is incorrect because real estate is generally subject to a “mid-month” convention.

Question 2

Under the tax rules governing depreciation, the cost of residential rental property placed in business service this year will generally be recovered over what period of time?

Answer 2

27.5 years

The cost recovery period for residential rental property is 27.5 years.

Question 3

Which of the following statements concerning capital cost recovery (depreciation) for assets placed in service this year is (are) correct? I. When the tax law specifies a particular type of depreciation method such as 150 percent declining balance, the taxpayer is precluded from using the straight-line method for that class of property. II. Automobiles are depreciated over a 3-year recovery period.

Answer 3

Neither I nor II
 I is incorrect because the law permits taxpayers the option to elect straight-line depreciation for any asset class placed in service during the year. II is incorrect because automobiles currently placed in service are depreciated over a 5-year recovery period.

Question 4

All the following kinds of property used in a trade or business or held for the production of income are depreciable or amortizable for tax purposes EXCEPT

Answer 4

Land may not be depreciated for tax purposes.

Question 5

All the following statements concerning the recovery periods and methods for determining cost recovery deductions for property placed in service this year are correct EXCEPT

Answer 5

The depreciation method applicable to all property is the double-declining-balance method.
Only property in the 3-year, 5-year, 7-year, and 10-year classes can use the double-declining-balance method. Classes of 15 years and 20 years use 150 percent declining balance. Both residential and nonresidential real estate use the straight-line method.

Question 6

All the following are basic requirements for the allowance of a depreciation deduction EXCEPT

Answer 6

the asset must be used only in the taxpayer’s trade or business
Assets held for the production of income as well as assets used in a trade or business may qualify for depreciation deductions.