Property Rules/ Corp Taxes (III)

Question 1

Revocable Trust Definition?

Answer 1

A trust that can be CHANGED or TERMINATED at any time by its creator or another person.

Does not have same tax advantages as irrevocable trust.

The revocable trust is considered to be part of the gross estate of the grantor.

Question 2

Hot do you qualify for IRC Section 179?

Answer 2

Property must be tangible personal property that is

1) Acquired by an unrelated party
and
2) Purch. for use in Taxpayers active trade or business

Question 3

What is the effect of IRC Section 179?

Answer 3

You can fully expense, in the year of purchase, the cost of new or used tangible, depreciable personal property.

Question 4

MACRS depreciation rules (Modified Accelerated Cost Recovery System)

(For machinery and equipment)

Answer 4

For 3-, 5-, 7-, and 10- year property placed in service after (1/1/87),

MACRS is computed using the 200% declining balance method.

For 20- yr MACRS property – computed using the 150% declining balance method.

SAL VAL is ignored.

Question 5

What is the Half-Year convention for MACRS depreciation?

machinery and equipment

Answer 5

In general, 1/2-yr convention applies to personal property…

Means that personal property placed in service OR disposed of during taxable year, is treated as being placed in svc. or disposed at MIDPOINT of year.

For PERSONAL property.

Question 6

What is the Mid-Quarter convention for MACRS depreciation?

machinery and equipment

Answer 6

Use if more than 40% of depreciable PERSONAL prop is placed into service during LAST quarter of the year.

Question 7

What is MACRS residential real estate RENTAL property depreciation rules?

Answer 7

27.5 year straight-line

SAL VAL IGNORED, but you must SUBTRACT LAND VALUE first, as well.

Question 8

what is MACRS NON-residential property depreciation rules?

Examples?

Answer 8

39 year straight-line

Warehouses, office buildings

does NOT incl. cost of the land.

Question 9

MACRS mid-Month convention

for Real Estate, not mach/equip

Answer 9

Straight-line dep. is calculated based upon number of MONTHS prop is in service.

One half-month is taken for dep. during the MONTH the prop is placed In service.

One half-month is taken in the month the prop is disposed of.

Question 10

Definition of Section 179 expense?

Answer 10

It is an expense deduction that you can elect to take in lieu of depreciation. LIMIT is $25K of new or used PERSONAL property acquired from unrelated source during that year.

Reduced dollar for dollar for amnts. placed into service of over $200K.

Question 11

MACR 5-year property?

has Asset Dep. midpoint of 4-10 years

Answer 11

Automobiles, light trucks, computers, typewriters, copiers, gen. electronics

Question 12

MACR 7-year property?

has Asset Dep. midpoint of 10-16 years

Answer 12

Office furniture & fixtures, equipment, property with no CLASSIFIED ADR point, railroad tracks

Question 13

MACR 10-yr?

Answer 13

ADR midpoint 16-20 years

Question 14

MACR 15-yr?

Answer 14

ADR midpoint 20-25 years – sewage treatment plants, telephone distribution plants, comparable equipment use for voice/data (Telephonics)

Question 15

MACR 20-yr?

Answer 15

ADR midpoint of 25+ years or more (non-real,) incl. sewer pipes.

Question 16

Section 1245 rules of which gain is recaptures?

hint.. lesser of..

Answer 16

less of Depreciation taken
or Gain Recognized

Section 1245 applies to PROPERTY and not REALTY.

Question 17

Rule about distributions on S-corps?

Answer 17

Amount distributed can reduce Adj. Basis of stock, but it’s one of the last adjustments and stock cannot dip below 0.