M5: Cost Recovery

Question 1

Mid-quarter

Answer 1

If bottom heavy with 40% in last quarter

Question 2

MACRS Personal Property Other than Real Property (machinery & equipment)

Answer 2

Half year convention = in year you buy it and sell it
Mid quarter convention = if bottom heavy with 40% in last quarter
Under MACRS method depreciation for property placed in service after 1986 is ignored for purposes of computing the deduction.

Question 3

Section 179 expense

Answer 3

each tax year, a taxpayer may deduct as an expense in lieu of depreciation, a fixed amount of depreciable (machinery, equipment, computer software) property

Immediate expensing = machinery & equipment

• $510k for new or used personal property acquired from an unrelated party
• reduced dollar for dollar, that exceeds $2,030,000 in 2017
• the deduction is not permitted when a net loss exists if the deduction would create a net loss

Question 4

Types of property:

Answer 4

3 year : horses more than 2 years old
5 year: more automobiles, light trucks, computers, and copiers
7 year: furniture, fixtures, and equipment

Question 5

Intangibles

Answer 5

Intangibles include: goodwill, covenants not-to-compete, franchises, trademarks, and trade names
amortized using straight line basis over a period of 15 years

Question 6

Intangibles

Answer 6

amortized using straight line basis over a period of 15 years