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Individual Tax (General) > CPE Depreciation Sept 2020 Surgent > Flashcards

CPE Depreciation Sept 2020 Surgent Flashcards

1
Q

Capitalization

A

Code section 263. Reg 263.

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2
Q

Landmark Cost Segregation court case

A

Hospital Corporation of America vs. Commissioner

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3
Q

Court case on reasonable capitalization policy useage

A

Alacare Home Health Care vs. Commissioner

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4
Q

Court case on reasonable capitalization policy useage

A

Alacare Home Health Care vs. Commissioner

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5
Q

What do we depreciate?

A

Capital expenditures used in sect 168 (not capital assets)

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6
Q

Section 179 Expense (election to expense)

A

Immediate expense deduction business owners take for purchases of depreciable business equipment, instead of capitalizing it

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7
Q

Qualifying Property (for Section 179)

A
  1. Property must be purchased
  2. Predominate business use of more than 50%
  3. Excludes investment property
  4. Excludes property held by estate/trust/tax-exempt/passive activity
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8
Q

Section 168

A

Taxpayer’s trade or business, or production of income

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9
Q

Capital Expenditures Section 263

A

Amount paid for new buildings, permanent improvements, or restoration. Adds value, adapts to a new use, or substantially prolongs the useful life.

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10
Q

Depreciable Assets (3)

A

(1) Tangible personal property
(2) Intangible property (copyrights, patents, computer software)
(3) Intangible assets (goodwill, covenant not to compete)

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11
Q

Basic requirements for property to be depreciable (5)

A
  1. Hold title
  2. Use in business or income-producing activity
  3. Have a determinable useful life
  4. Expected to last more than one year
  5. Not be “excepted property”
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12
Q

Basis is depreciable property

A

Cost plus related amounts (include freight, sales tax, installation and testing fees, etc)

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13
Q

Are Section 179 deductions based on the tax year, or the calendar year, that the item is placed in service?

A

Tax year.

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14
Q

QIP

A

Qualified Improvement Property. Any improvement to interior of nonresidential real property building, if date of improvement placed in service is after building was placed in service. Cannot include building enlargement, elevator/escalator, internal structural framework of building.

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15
Q

Qualified Real Property added by TCJA of 2017

A

Improvements to nonresidential real property:

  • roofs
  • HVAC
  • fire protection/alarms
  • security systems
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16
Q

Form 4562

A

Part 1: Section 179 Expense Election

Parts 2&3: Depreciation and MACRS

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17
Q

How to elect Section 179 expense?

A

Fill out lines 1-13 of Form 4562

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18
Q

Maximum Section 179 expense for 2020 (Overall Limit)

A

$1,040,000. Must be reduced dollar-for-dollar by excess of purchase over Acquisition Limit

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19
Q

Acquisition Limit of 179 expense for 2020

A

$2,590,000

20
Q

Taxable Income (Trade or Business Income) Limitation

A

Limits Section 179 deduction to taxable income (add back shareholder wages). Section 179 over this limitation CAN be carried forward.

21
Q

Can unused Section 179 be carried forward?

A

YES if limited by Taxable Income Limitation. NO if limited by Overall Limit of $1.04 million (2020)

22
Q

Tax Benefit Rule

A

Can be used in case of exceeding Overall Limit of Section 179 and not being able to use it all. Can subtract excess amounts from basis WHEN SELLING item.

23
Q

Can you decide to elect Section 179, but only a certain amount, and depreciate the rest?

A

Yes. Good tactic if you are going to exceed Overall Limit of Section 179/

24
Q

Can a pass-through entity take Section 179 and report on a loss, on the K-1?

A

Yes, because trade/business income requires a modification (shareholder wages) for Section 179 purposes. So you can have both.

25
Q

Section 168(k)

A

Bonus Depreciation (also called Additional First Year Depreciation)

26
Q

What is the last year of 100% Bonus Depreciation under the TCJA?

A

2022 (but likely to be extended due to Covid)

27
Q

How did the TCJA change the type of property eligible for bonus depreciation/168k?

A

TCJA allowed used property purchased to be eligible for bonus. Prior, it had to be new.

28
Q

CARES Act

A

Coronovirus Aid, Relief, and Economic Security Act

29
Q

CARES Act technical correction to depreciation

A

Allowed QIP to be included as 15 year property under Sect 168(e)(3)(E), allowing it to be eligible for bonus depreciation. Effective for property placed in service after 12/31/17.

30
Q

Qualified Sect 168k (Bonus Depreciation) Property

A
  1. New (now new or used)
  2. Tangible property
  3. Depreciated under MACRS
  4. Recovery period of 20 years or less
31
Q

(T/F) You must elect Section 179 if you want to use it.

A

True.

32
Q

(T/F) You must elect Section 168k/Bonus Depreciation if you want to use it.

A

False. You are required to take it by default. You must elect OUT of it if you don’t want to use it. You must elect out of an entire class. Cannot be revoked.

33
Q

Rev Proc 2020-25

A

Allows you to revoke election out of Bonus Depreciation (before this Rev Proc, could not revoke)

34
Q

Property Excluded from 168(k)

A
  1. Listed property used 50% or less for business
  2. Any property required to be depreciated under ADS
  3. Property placed in service/disposed of same year
  4. Property converted from business>personal use. Property personal>business use in the same year may qualify.
35
Q

MACRS Depreciation Options (4)

A
  1. 200 DB
  2. 150 DB (must use for AMT)
  3. Straight Line MACRS Recovery Period
  4. Straight Line over ADS life
36
Q

MACRS Recovery Periods (6 for tangible personal property, 2 for tangible real property)

A
  1. TPP: 3/5/7/10/15/20

2. TRP: 27.5 & 39

37
Q

Leasehold Improvements

A

Not the same as QIP; could include items like elevators or structural improvements.

38
Q

ADS

A

Alternative Depreciation System

39
Q

Listed Property

A

Automobiles, any property used as means of transportation, property used for entertainment or recreation

40
Q

What type of listed property did the TJCA remove?

A

Computer or peripheral equipment

41
Q

Rev Proc 2019-13 Safe Harbor

A

Corrects technical issue that forced luxury automobile depreciation to 14+ years, back down to 5 years. Does NOT apply combined with Section 179.

42
Q

Form 4797

A 
Part 1: Capital gain/loss
Part 2: Ordinary gain/loss
Part 3: 
- 1245 Personal Property
- 1250 Real Property
- 1231 Other Business Property (includes 1252/1254/1255)
43
Q

1231 Property

A

Property used in trade/business held more than a year

44
Q

Best Case for Ordinary/Capital Gain/Loss

A

Prefer Ordinary Loss over Capital Loss. Prefer Capital Gain over Ordinary Gain.

45
Q

Net 1231 Losses Convert to ____ Loss

A

Ordinary

46
Q

Net 1231 Gains Convert to _____ Gain

A

Capital

Individual Tax (General) (2 decks)

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