Chapter 7 - Depreciation

Question 1

What are the depreciation methods?

Answer 1

1) Straight Line = ( Basis - SV ) / Useful life

2) 150% Declining Balance = AB x ( 150 % / Useful Life )

3) 200% Declining Balance = AB x ( 200% / useful life )

Question 2

MACRS

Answer 2

Modified Accelerated Cost Recovery System (MACRS) applies to property placed in service in 1987 or later

Question 3

What are MACRS two deprecation systems?

Answer 3

1) General Depreciation System (GDS) that is the mostly preferred .

2) Alternative Depreciation System (ADS) that is required by law to use.

Question 4

MACRS Recovery Period

Answer 4

Question 5

ADS Recovery Period

Answer 5

Question 6

What items are required ( by law ) for ADS?

Answer 6

1. Listed Property
2. Property used , leased, or financed by tax - exempt organizations
3. Tangible property used predominantly outside the US.
4. Imported property from a country that engages in discriminatory trade practices

Question 7

What are QBU rules?

Answer 7

1. Use by an employee’s property is QBU { only if it is in the employer’s trade or business}. It has to be convenient and required condition for employment.
2. If QBU exceeds 50% in the tax year in which listed property is placed in service, Sec 179 and MACRS depreciation are allowable with respect to the QBU portion.
3. if QBU is under 50% during the year in which listed property is placed in service, Sec 179 election is not allowable and ADS deprecation is used ( S - L over the class - life )
4. when QBU exceeds 50% in the first year not current year, TP must recapture as GI (any excess of deprecation allowed over ADS deprecation for prior years)

Question 8

Sec 280F

Answer 8

allows an additional first year deprecation ( bonus depreciation ) amount of 8000 for passenger automobile acquired after 9/17/2017 for calendar year 2022

Question 9

What is the maximum amount of allowable depreciation for passenger automobiles placed in service during the year 2022 ( without claiming Sec 168 (k)

Answer 9

1. 11,200 for the year in which the vehicle is place in service
2. 18000 for the second year
3. 10,800 for the third year
4. 6,460 for the fourth and later years in the recovery period

Question 10

Sec 179

Answer 10

A person may elect to deduct all or part of the cost of sec 179 property acquired during the year, maximum is 1,080,000

Question 11

What does Sec 179 do ?

Answer 11

it is a deprecation expense, so it reduces basis in the property prior to computation of any other depreciation deduction allowable for the first year

It is also subject to depreciation recaptured under Sec 1245

Question 12

Sec 179 limits

Answer 12

1. 1,080,000 minus of tangible personal property purchases for the year over 2,700,000. Yet, it doesn’t surpass 3,780,000 .

Question 13

100% Expensing Bonus ( Bonus depreciation )

Answer 13

Qualifying property of the first year has a bonus depreciation of 100%. It must be placed in service from 9/27/2017 to 1/1/2023

Any Sec 179 is taken before any bonus depreciation then any deduction for bonus depreciation is taken before regular depreciation is recalculated

Question 14

What are the intangibles excluded from amortization treatment?

Answer 14

1) Interests in Corporations, partnerships, Trusts, and estates

2) Interest in land

3) Most financial instruments and contracts

4) Leases of intangible personal property

5) Professional sports franchises

Question 15

Overview of business Property Recharacterization

Answer 15

Question 16

Overview of Business Property Gains and Losses

Answer 16