ITX - 37 Flashcards
Typical Recovery Periods for Asset Classes:
Autos, most trucks, computers
5-year
Typical Recovery Periods for Asset Classes:
Office furniture and equipment (except computers), most machinery
7-year
Typical Recovery Periods for Asset Classes:
Residential rental property
27.5-year
Typical Recovery Periods for Asset Classes:
Nonresidential real property
39-year
Typical Recovery Periods for Asset Classes:
Land improvements
15-year
___ is the taxpayer’s investment in property
Basis
The original basis in property is usually the taxpayer’s ___.
cost
The basis will include payments made to acquire the property, such as ___.
commissions
advertising
SALES TAX
legal fees
Basis is adjusted ___ when a taxpayer takes depreciation deductions.
downward
Basis is adjusted downward when a taxpayer takes ___.
depreciation deductions
Basis is adjusted ___ when the taxpayer makes improvements to the property.
upward
Basis is adjusted upward when the taxpayer makes ___ to the property.
improvements
Basis: Non-related party purchase
Cost plus expenses of sale
Basis: Gifts
Donor’s basis is increased by the gift tax paid by the donor on appreciation (Except: if sold for a loss, FMV on the date of the gift, when less than donor’s basis)
Basis: Inherited assets
The FMV on date of death (or the 6-month alternate valuation date)
Basis: Assumption of debt
The buyer includes any debt assumed in the purchase price in his or her original basis
Basis: Improvements to tangible assets
Cost of improvements added to basis
Basis: Basket purchase (i.e., building and various land)
Purchase price is allocated to assets according to their relative FMV
Basis: Converted from personal use
Cost or FMV at conversion, whichever is less
Repairs are expensed by the taxpayer: therefore, the property’s basis ___.
does not increase
___ is allowed for recovery of the cost of assets purchased for use in a trade or business (including rental activities).
Depreciation
___ is allowed for the recapture of the cost of certain intangible assets.
Amortization
Original Issue Discount (OID): When clients purchase certain securities that will mature and pay back a maturity value greater than the amount paid, they will have a certain amount of interest ___ into current income, even though they have not received it.
imputed
Original Issue Discount (OID): Imputed interest will ___ the client’s basis in the asset and ___ any capital gain on the sale or maturity of the asset.
increase
reduce
Taxpayers who buy bonds at a discount will receive more than what they paid for the bonds when they mature and will have to pay taxes on a ___ amount each year they hold the bond. This imputed interest will ___ the client’s basis in the asset and ___ the capital gain on the sale of the asset.
pro-rata
increase
reduce
If a taxpayer pays a premium for a bond, he or she has the option of ___ the bond premium over the years remaining until maturity or including the bond premium as part of ___. If the taxpayer elects to ___ the bond premium, the amount of interest income reported each year from the coupon payments will ___.
amortizing
basis
amortize
decrease
When property is contributed to a controlled corporation or partnership in return for stock in the corporation or in return for a partnership interest, the partner’s or shareholder’s basis is ___ to the corporation or partnership.
carried over
___ basis refers to the basis in property acquired by gift because the donor’s basis is carried over to the donee.
Carryover
Those assets included in taxable estate of a decedent and distributed by the estate receive a ___ in basis. The receivers of these bequests receive a basis in those assets equal to ___.
step-up
the FMV at the date of death or six months after death
The general rule is that property owned jointly by a decedent and another person (not a spouse) is included in its entirety in the estate of the decedent unless the executor of the estate can show that the surviving joint owner ___.
contributed part or the entire purchase price
Property jointly owned by spouses: When one spouse dies, one-half of the property owned jointly with the other spouse is included in the estate of the ___, and thus the surviving spouse receives a ___ in basis for half of the assets.
first to die
step-up
Community-property state: If at least ___ of the property is included in the estate of the first to die, the second spouse will receive a step-up in basis for __ of the community property.
half
all (not half)
All assets acquired by a client in a given year are treated as being acquired by __. A half-year of depreciation is taken in the year of ___, and a half-year in the year of ___. The half-year requires convention requires only ___% depreciation in the first year.
July 1
acquisition
disposition
10%
When a client acquires more than 40% of the total property acquired (27.5- and 39-year property ignored) in the fourth quarter, the ___ convention applies.
mid-quarter
All realty (27.5- and 39-year property) is depreciated using the ___ convention in the year of acquisition.
mid-month
Property that is a 3-, 5-, 7-, 10-year property is depreciated using the ___ method, switching to ___ when it will result in higher depreciation.
double-declining method (DDM)
straight -line
Formula for Depreciation (DDM)
(Original basis less prior depreciation/Useful life) x 2
15- and 20-year property is depreciated when using the ___ method, switching to ___ when it will result in higher depreciation.
150%-declining method
straight-line
Formula for Depreciation (150%)
(Original basis less prior depreciation/Useful life) x 1.5
27.5- and 39-year property use the ___ method.
straight-line method
Formula for Depreciation (SL)
Original basis/Useful life
If business-use of any listed asset is less than 100%, limits are multiplied by ___.
the business-use percentage
If the business use of any listed asset is less than 50% (production of income does not count), then the asset must be depreciated using the ___ method over a longer useful life. If the business use begins above 50% but drops to less than 50% in subsequent years, the ___ depreciation taken in earlier years must be ___.
straight-line
accelerated
recaptured
When a cost is incurred to lengthen the useful life or increase the market value of an asset, this cost is considered a betterment and must be ___ to the cost of the asset and ___ over its life.
added
depreciated
If the cost is incurred only to bring the asset back to its normal use, then it is considered a ___ and can be ___, to reduce current income.
repair
expensed
___ accelerates the depreciation of most assets into the early years of use.
MACRS
A business acquiring assets other than real estate can expense $___ of business-use tangible personal property in the same year as it is placed in service.
$25,000
A business can deduct Section 179 depreciation only to the extent of?
its income for the year the assets was acquired
No ___ can be created or increased by Section 179. Any Section 179 depreciation that is disallowed because of ___ can be carried forward to future years.
loss
insufficient income
Section 179 is not available to ___ property, and it is limited for ___.
rental
automobiles
For ___, the Section 179 deduction passes through to the owners.
partnerships and S corporations
Bonus depreciation: The amount deductible was ___% of the asset’s basis after subtracting any Section 179 expense used to reduce the asset’s basis. Bonus is available for assets with a useful life of less than ___ years.
50%
20 years
Regular MACRS depreciation is calculated on the basis remaining after the ___% bonus is subtracted.
50%
Bonus depreciation for the following property: ?
1) Property with a useful life of less than 20 years
2) Water utility property
3) Off-the-shelf computer software
4) Qualified leasehold property
___ describes the cost recovery for an intangible asset over the life of that asset.
Amortization
Two classes of amortization: 1) first class is amortized over __ months; 2) second class is amortized over ___ year period.
60 months
15-year
First class amortization includes?
research and experimental cost organizational costs (legal and accounting fees)
Second class amortization includes?
goodwill franchises trademarks start-up expenditures government-granted licenses
Taxpayers may elect to deduct the first $___ of start-up expenditures in their first year of business. If the total start-up expenditures exceed $___, this $___ election is reduced dollar-for-dollar. All remaining expenses are amortized over the ___ period, starting with the first month of business
$5,000
$50,000
$5,000
15-year period or 180-month
Taxpayers can claim ___ expense related to the exhaustion of natural resources, including oil wells, coal mines, and timberlands.
depletion
