Depreciation

Question 1

Real Property

Answer 1

Land and Buildings

Question 2

Personal Property

Answer 2

Machinery & Equipment, automobiles

Question 3

Capital Assets

Answer 3

Property held by the taxpayer such as:

1. Personal auto of indiv. taxpayer
2. Furniture & fixtures in the home of the indiv taxpayer
3. stocks & securities of all types (excpt held by dealers)
4. personal prop of a taxpayer NOT used in a business
5. real prop not used in a business
6. interest in a partnership
7. goodwill of a corporation
8. purchased copyrights,literary,musical or artistic compositions (= capital assets)
9. other assets held for investment

Question 4

Non-Capital Assets

Answer 4

1. Inventory
2. Depreciable personal prop & real estate used in a business (i.e.-Section 1231 property)
3. Accounts and notes receivable of a taxpayers business
4. Original artist copyrights, literary, musical or artistic compositions (=inventory)
5. Treasury Stock

Question 5

MACRS stands for

Answer 5

Modified Accelerated Cost Recovery System (ACRS was pre 1987. Note: Salvage value is ignored.

Question 6

Types of Property & Life:

3 yr, 5 yr, 7 yr and 10 yr.

Answer 6

200% Half Year Convention

5 Years - Autos, Light Trucks, Computers, Office Equip.
7 Years - Office Furn. & Fixtures, Equipment,

Question 7

Types of Property & Life:

15 yr and 20 yr (other than real property)

Answer 7

150% Half Year Convention

Question 8

Real Property Depreciation - NON Residential

Answer 8

39 Years/ Straight Line/Mid Month Convention.

i.e.- 1/2 month is taken in the month the property is placed in service and in the month it is sold.

Question 9

Real Property Depreciation - RESIDENTIAL

Answer 9

27. 5 Years/Straight Line/Mid Month Convention.

i. e.- 1/2 month is taken in the month the property is placed in service and in the month it is sold.

Question 10

Sec 179 for 2014

Answer 10

$25,000 on new OR used Personal Property (M&E) acquired from an unrelated party.

Question 11

SUV Section 179

Answer 11

SUV = Sport Util Vehicle w. gross weight > 6,000 lbs

but less than 14,000 lbs, doesn’t include heavy pickup trucks, vans and small buses.

Question 12

Bonus depreciation

Answer 12

hasn’t been renewed for 2014

Question 13

Depletion

Answer 13

GAAP=Cost
Tax = deduction is limited to 50% of taxable inc (excluding depletion). For oil & gas limitation is 100%.
% depletion can be taken even after the costs have been completely recovered and there is no basis.

Question 14

Amortization of Intangibles (Goodwill, licenses, franchises, trademarks)

Answer 14

GAAP Treatment not the same as tax
TAX = Amortized 15 yrs/Straight-line
GAAP = Test for Impairment/Not amortized - it is expensed.

Question 15

Amortization of Business Organization & Start Up Costs

Answer 15

Expense $5,000

Amortize the remainder over 15 years (180 months)

Question 16

Operating Losses

Answer 16

Offset Income, Carryback 2 years/Carryforward 20 yrs

Remember: For NOLs Hindsight is 20/20

Question 17

Individual Capital Losses

Answer 17

Offset Income up to $3,000/year
No Carryback/Carryforward forever
Remember: A “capital” mistake can not be changed and could haunt you forever.

Question 18

Corporate Capital Losses

Answer 18

NO Offset to income (Has to offset capital gains)

Carryback 3 yrs / Carryforward 5 years

Question 19

For Real Estate Depreciation reduce by ___________

Answer 19

Land value

Question 20

Percentage Depletion for Tax is or is not a “Preference Item” for AMT

Answer 20

It IS a preference item for AMT.

Question 21

Qualifying Small Taxpayer Safe Harbor Rules

Answer 21

Have avg annual gross receipts of $10Million or less for past 3 years.
Eligible bldg.cost < $1,000,000
Expense < or = $10,000

Take the lesser of the expense or 2% of the unadjusted basis of the building.