Property - Cost Recovery

Question 1

What types of property are depreciable for tax purposes

Answer 1

only business property not property for personal use

Question 2

Personal property

Answer 2

means any property that is moveable - any property besides real property or realty
This includes both tangible and intangible personal property

Question 3

MARCRS

Answer 3

200% declining balance is used

this is double the straight-line method each year based on the book value of the asset

Question 4

Mid-year convention

Answer 4

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

Question 5

Real property

Answer 5

Realty - land and anythign affixed to land such as building, machinery an dcrops
Under MARC - uses the straight-line method

Question 6

Mid-month convention

Answer 6

When property is placed into service, teh asset is treated as being placed into service at the midpoint of the month

Question 7

MACRS useful lives - 3 years

Answer 7

special tools for specific manufacturing applications

Question 8

MACRS useful lives - 5 years

Answer 8

Computers, copy machines, cars & trucks

Question 9

MACRS useful lives- 7 years

Answer 9

office furniture & Equipment, machinery

Question 10

MACRS useful lives: 10 years

Answer 10

water vessels

Question 11

For MACRS when is 200% used versus 150%

Answer 11

200% is used for 3,5,7, and 10 years. The 150% is used for 15 and 20 year periods

Question 12

What is a section 179 election

Answer 12

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

Question 13

What is bonus depreciation

Answer 13

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

Question 14

What is the “basic idea” of 1231

Answer 14

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

Question 15

what type of property does 1231 assets include

Answer 15

assets used in business
- held for longer than one year
- include realty and depreciable property
DOES NOT INCLUDE capital assets, inventory or accounts receivable

Question 16

What determines whether it’s taxed as a long-term capital gain or ordinary loss

Answer 16

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.

Question 17

What is 1245 recapture?

Answer 17

gains on personalty (personal property) as ordinary income up to the amount of accumulated depreciation

Question 18

What is section 1250 recapture

Answer 18

This is a recapture of accumulated accelerated depreciation on buildings in excess of straight-line depreciation as ordinary income

Question 19

Netting 1231 gains and losses

Answer 19

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

Question 20

How are start-up costs treated?

Answer 20

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.

Question 21

What is the formula for calculating yearly depletion

Answer 21

(Adjusted basis in property / estimated units of minerals) x Mineral units sold

Question 22

What is the limitation for depletion deductions

Answer 22

The total deductions allowed are limited to the unrecovered capital investment in the property