Property - Cost Recovery Flashcards
What types of property are depreciable for tax purposes
only business property not property for personal use
Personal property
means any property that is moveable - any property besides real property or realty
This includes both tangible and intangible personal property
MARCRS
200% declining balance is used
this is double the straight-line method each year based on the book value of the asset
Mid-year convention
When personal property is placed in service, the asset is treated as being placed into service at the mid-year point, regardless of when it is is purchased.
When calculating depreciation on a problem, you’d be calculating 6 months of depreciation for the year the asset is put into service
Real property
Realty - land and anythign affixed to land such as building, machinery an dcrops
Under MARC - uses the straight-line method
Mid-month convention
When property is placed into service, teh asset is treated as being placed into service at the midpoint of the month
MACRS useful lives - 3 years
special tools for specific manufacturing applications
MACRS useful lives - 5 years
Computers, copy machines, cars & trucks
MACRS useful lives- 7 years
office furniture & Equipment, machinery
MACRS useful lives: 10 years
water vessels
For MACRS when is 200% used versus 150%
200% is used for 3,5,7, and 10 years. The 150% is used for 15 and 20 year periods
What is a section 179 election
Allows the taxpayer to expense a certain amount of business property instead of depreciating it.
The amount allowed for 2018 is 1,000,000
The amount expensed cannot exceed business income
If it exceeds the limit it can be carried forward
What is bonus depreciation
In addition to the section 179 deduction.
It is for qualifying property - personalty with a recovery period of 20 years or less and does not apply to buildings
- bonus depreciation of 100% is allowed for qualifying property placed in service after 2017
This applies to NEW and USED qualifying property
What is the “basic idea” of 1231
the business has been taking depreciation on the asset, which lowers the basis in the asset. Then when the asset is sold, the depreciation is recaptured by classifying all or part of the gain on the sale as income to the business
what type of property does 1231 assets include
assets used in business
- held for longer than one year
- include realty and depreciable property
DOES NOT INCLUDE capital assets, inventory or accounts receivable
What determines whether it’s taxed as a long-term capital gain or ordinary loss
When 1231 assets are sold, the gains and losses are netted together, if there’s a net gain it’s taxed as a long-term capital gain.
If the gains and losses net to an overall loss, the it’s an ordinary loss.
What is 1245 recapture?
gains on personalty (personal property) as ordinary income up to the amount of accumulated depreciation
What is section 1250 recapture
This is a recapture of accumulated accelerated depreciation on buildings in excess of straight-line depreciation as ordinary income
Netting 1231 gains and losses
To the extent that 1231 gains exceed 1231 losses, teh net gain is treated as a long-term capital gain
- if 1231 losses exceed 1231 gains, the loss is deductible as an ordinary loss
How are start-up costs treated?
5,000 can be expensed immediately, and the remaining is amortized over 15 years.
There is a cap of 50,000 and any startup costs above 50,000 reduces the allowed 5,000 dollar for dollar.
What is the formula for calculating yearly depletion
(Adjusted basis in property / estimated units of minerals) x Mineral units sold
What is the limitation for depletion deductions
The total deductions allowed are limited to the unrecovered capital investment in the property
