Depreciation

Question 1

How is excess 179 expense carried forward?

Answer 1

**- Carry forward to next year **

- Use in any year is limited to taxable income

Question 2

What is (are) the depreciation convention(s) for personal property?

Answer 2

Mid-year

OR

Mid-quarter

Question 3

When is the mid-quarter convention used?

Answer 3

For depreciation when ** **≥ 40% of all purchases occur in 4th quarter (3 final month of the year)

Question 4

What depreciation convention is used for real property?

Answer 4

Mid-month

Question 5

What depreciation life and convention are used for leasehold improvements?

Answer 5

• 15 year straight line (S/L)
• lessor exclude from gross income any improvement made by the lessee UNLESS improvement made in lieu of rent

Question 6

Depreciable real property

Answer 6

• Depreciable real property is section 1250 property
• Recovery period/depriciation methode
  
  • 27.5 year SL for residential
  • 39 year SL for non residential
• Slave value ignore
• Convention: mid-month convention - 1/2 month when place in service and 1/2 month of disposal

Question 7

Depreciable Personal property

Answer 7

• Personal propety is 1245 asset
• Recovery period
  
  • 3 years - software, small tools
  • 5 years - car, light trucks, computer, copier, printer
  • 7 year - most other personal property, equipment, office furniture, desks
• **Salvage value is ignore **
• Depreciation methode: - MACRS 200% Double Decline Balance BUT can elect SL - 150% DB for 10 &20 yr property
• Convention:
  
  • 1/2 year for year of acquisition and disposition OR
  • Midquater if ≥ 40% of the personal property placed in service during the last 3 months of tax year

Question 8

Section 179 election

(7 points)

Answer 8

1. Can immediately expense depreciable new business property rather than capitalize it
2. Not allowed if a net loss exists or if it would create a net loss
3. The **property must be acquired by purchase from an unrelated party for use in an active trade or business **
4. Expense maximum is up to $500,000 for 2013
5. Reduced dollar for dollar by excess of purchases over $2,000,000
6. Amount rededucted **reduced the depreciable basis of the asset **
7. Not available if purchases exceed $2,500,000 in 2013