Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Coursera - Federal Taxation II > Cost Recovery > Flashcards

Cost Recovery Flashcards

1
Q

What are two aspects of Cost Recovery?

A
  1. Assets have a useful life greater than one year

2. assets cost must be capitalized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is capitalization?

A

Cost must be shown on the balance sheet rather than as expenses - Depreciated, Amortized or Depleted over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Straight Line depreciation

A

Allocate total cost equally over the useful life of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What type of property is depreciated?

A

tangible personal and real property - other than land

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What form of cost recovery method is used for tangible property?

A

depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What form of cost recovery method is used for real property?

A

depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What form of cost recovery method is used for land?

A

Cost recovery is not allowed for land because land is not “used” up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What type of property is amortized?

A

intangible personal property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What form of cost recovery method is used for intangible property?

A

amortization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What type of property is depletion cost recovery used for?

A

natural resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What type of cost recovery method is used for natural resources?

A

depletion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the most relevant date when using a cost recovery method?

A

The date an asset is put into service NOT the date of purchase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How do cost recovery deductions affect basis of an asset?

A

Basis is reduced by cost recovery deductions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the formula for Adjusted Basis?

A 
Original Basis
- Accumulated cost recovery deductions
\+ Capital Improvements
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
 Adjusted Basis
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the formula to determine Amount Realized?

A 
Cash Received
\+ FMV of property recieved
\+ Disposition of liablities
- Selling Expenses
--------------------------------
Amount Realized

or 
What the TP gets
- What the TP gives up
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Amount realized
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does “disposition of liabilities” mean?

A

Someone takes over your debts for you - a buyer takes over a loan you owe

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the formula for Realize Gains/Losses?

A

Amount Realized
-Adjusted Basis
_____________
Realized Gains/Losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the formula for Recognized Gains/Losses?

A 
Realized Gain/losses
-postponed/deferred gain/loss
-tax-free gains/losses
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Recognized Gains/Losses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Accumulated Depreciation

A

Sum of annual depreciation deductions that have been claimed over the life of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

In what two situations is Cost Recovery done?

A
  1. purchased a business asset
  2. extension of useful life establishes or increases basis
    (ex: buy a hard drive for a computer extends computers life)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How does it affect the basis of an asset if the taxpayer does NOT take cost recovery deductions?

A

Basis must be reduced if cost recovery deductions are “allowed” even if tp does not take them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What 4 ways can a taxpayer establish basis for cost recovery purposes?

A
  1. Buy an asset
  2. convert asset from personal to business use
  3. acquire through non-taxable exchange
  4. Inheritance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Realty property business property

A

land and buildings permanently affixed to the land

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Personalty business property (personal bus.)

A

Any asset that is not realty or personal use property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Personal Use property
property held for taxpayers personal use NOT for trade or business
26
Formula for Straight-Line Depreciation
(cost-salvage value)/useful life
27
What does MACRS stand for?
Modified Accelerated Cost Recovery System
28
Who determines the life of the property for MACRS?
IRS - tables
29
What 4 things do you need to calculate MACRS?
1. original basis 2. applicable recovery period (IRS table) 3. applicable convention 4. applicable percentage (IRS tables)
30
What are the 2 MACRS conventions?
1. Half - year | 2. Mid -quarter
31
When is MACRS Half -Year convension used?
1. tangible personalty property other than real | 2. < = 40% of the assets where put into service in 4th quarter
32
HY convention: How much depreciation can you take if you dispose of the asset before the end of its useful life?
Only 1/2 the depreciation deduction can be taken in final year
33
When doe you use MACRS Mid-Quarter convention?
1. tangible personal property assets other than real | 2. >40% of the assets are put into service in the last quarter
34
Can you switch MACRS conventions for an asset?
No. The asset must remain on the convention it starts on.
35
What is the Convention for Realty property?
Mid-month convention Straight-Line depreciation
36
What is the class life for Residential Property?
27.5 years
37
What is the class life for non-residential property
39.0 (31.5 before 1993)
38
Residential property
80% or more of gross rental revenues are non-transient dwelling units
39
Non-residential property
gross rental revenues <= 80%
40
Bonus depreciation
1. fixed percentage (set by IRS) 2. deductible in the first year 3. In addition to regular depreciation 4. automatically calculated - tp must "elect out" if they do not want it applied - can be done by asset class
41
What kind of property qualifies for Bonus Depreciation?
1. Property with MACRS recovery period of less <= 20 years 2. Prior to TCJA act only new 3. After TCJA - new or used property
42
What is the percentage for Bonus Depreciation for the period of 9/28/17 - 2022?
100 % for both new and used property
43
What kind of property qualifies for Section 179 Election?
1. tangible personal property (new/used) 2. Certain non-residential real property improvements * non-structural - roof, AC system, security system * non-elevator interior 3. added after the structure was built
44
Is Section 179 automatic or do you have to elect it?
elect
45
In what order are MACRS, Bonus and Section 179 taken?
``` Basis - Section 179 ___________ If new basis remains -Bonus Depreciation _______________ If new basis remains - MACRC _________________ Adjusted Basis year 1 ```
46
What are two limitations to the Section 179 depreciation deduction?
1. Assets placed in service limitation | 2. Section 179 deduction can not create a loss
47
What is the "Assets placed in service limitation" | for Section 179?
The eligible Section 179 is reduced if the eligible Section 179 assets placed in service are > than the Threshold amount set by the IRS
48
Can the MACRS + Bonus Depreciation create a loss?
yes
49
What is Listed Property for Cost Recovery purposes?
Property that can be used for bother business and personal use. (ie: van, weight requirement, computers-before 2017)
50
What are the 3 depreciation rules for Listed property?
1. Listed property > 50% use MACRS, Bonus, Sect 179 2. If NOT predominantly business use straight-line 3. If business use falls <=50% after placed in service then you must RECAPTURE excess cost recovery = as if straight line was used all along
51
When do you have to recapture excess cost recovery for listed property?
Business use falls to <= 50% after placed in service
52
What is the RECAPTURE formula for listed property?
``` MACRS +Bonus +Sect 179 -Straight Line ________________ Recapture that is included in GI as ordinary income ```
53
What is the "Luxury Auto Limitation"?
Luxury vehicles <= 6000 lbs and placed into service in 2018 have recovery limits (ceiling) Luxury vehicles > limits do not apply
54
What is the INCLUSION amount for Leased Vechiles?
1. amount added to GI based on IRS table 2.. 2017: applies to auto with FMV>$19,000 2018+2019 applies with FMV>$50,000
55
How does Section 197 define assets that can be amortized?
1. intangible assets acquired/purchased 2. used in taxpayers trade or business 3. Includes: trademarks, trade names, non-compete covenants, good will, copy rights, patents and licences, going -concern value 4. self created asses are generally NOT amortized 5. Uses straight line depreciation
56
How many years is an intangible asset amortized?
Most: SL over 180 months (15 years) Purchased patents/copyrights - SL over 180 months Internally created patents - SL over 20 years Internally created copyright- SL over life of author +70 years
57
How does Section 195 define amortization for Start-up expenses?
1. investigation and operating expenses before opening the business are considered intangible assets 2. Business can immediately expense first $5000 (phased out dollar for dollar if expenses >$50,000 3. remaining amount amortized SL over 180 months
58
What two depletion methods are compared for natural resources? Which one should you choose?
Take the Larger of : 1. Cost depletion method 2. percentage depletion method
59
Depletion: What is the " depletion amount" formula for Cost Depletion method?
(basis/estimated recoverable units) * #units sold =Depletion
60
Depletion: What is the deduction formula for the Cost Depletion method?
(depletion/units)*#units sold = deduction
61
What is the recovery period for depletion?
deduct until all units are sold
62
Depletion: What is the formula for the "depletion amount" for the Percentage Method?
LESSER OF: 1. %(from table)*GI from resource OR 2. 50% (100% gas and oil) * TI before depletion deduction
63
Depletion: How are Intangible Drilling Costs (IDCs) handled?
1. immediately expense all costs in year of expense OR 2. depletion
64
Depletion: Which formula do you use if you deplete IDCs?
Greater of Cost Method or Percentage method
65
Depletion: What is the formula is used Cost Method for IDCs?
(basis + capitalized IDCs) + estimated recoverable units | divided by # units sold
66
Depletion:What formula is used for the Percentage Method for IDCs?
``` LESSER of: 1. % rate * GI from the resource OR 2. 50% (100% oil/gas) * TI before depletion deduction - IDC expense ```

Coursera - Federal Taxation II (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions