Prop Transactions - Section 1231 Assets - Cost Recovery

Question 1

What types of assets are eligible for Section 179 expensing?

Answer 1

Tangible personalty used in a trade or business.

Question 2

Describe the business use test for listed property.

Answer 2

1. Business use must exceed 50% of total use;
2. Business use is limited to use in the trade or for the convenience of the employer;
3. Failure to meet business use means cost recovery limited to straight line;
4. But note that business and investment use can be depreciated.

Question 3

What is the class life for realty?

Answer 3

39 years for nonresidential; 27 1/2 years for residential.

Question 4

What is the depreciation method for personalty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 4

The depreciation method is double declining balance.

Question 5

What is the general convention for realty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 5

The general convention is mid-month.

Question 6

What is the depreciation method for realty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 6

The depreciation method is straight line.

Question 7

What is the general convention for personalty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 7

The general convention is mid-year.

Question 8

Define “listed property.”

Answer 8

Assets, such as computers and vehicles (but not cell phones), that are commonly used for business and personal purposes.

Question 9

Under what circumstances must a convention other than the mid-year convention be used for all personalty?

Answer 9

A mid-quarter convention is used for all personalty if more than 40% of personalty is purchased in last quarter of the year.