Income Tax Planning | Lesson 4: Depreciation, Amortization, & Depletion

Question 1

BestBusiness, LLC bought two machines in the last two years. They bought the first machine on December 28 of last year. The machine arrived in the plant on January 2 of the current year, and it was installed on February 15 of the current year. The purchase price was $65,000. The second machine was purchased on November 15 and delivered and installed on December 3. The purchase price was $35,000. Which depreciation convention should they use?

a) Half-year
b) Mid-quarter
c) Mid-month
d) They can choose between half-year and mid-quarter.

Answer 1

Answer: A
They should use half-year. This convention is the default for personal property placed into service. The mid-month convention is used for real property. The mid-quarter convention will be used if greater than 40% of personal property is placed into service in the last quarter. In this example, the first machine is not placed into service until the current year because it was not installed until February 15. Therefore, 65% was placed into service in the first quarter, and only 35% was placed in the last quarter.

Question 2

Al owns Al’s Limousine Service, and he is considering purchasing a new automobile for use in his business. To what property class would a new car belong?

a) 3 year
b) 5 year
c) 7 year
d) 10 year

Answer 2

Answer: B

Automobiles used in business belong to the 5-year property class.