R2-M3 Cost Recovery

Question 1

MACRS Real Property Rules

Answer 1

1. Land is not depreciated
2. Ignore salvage value
3. Residential real property: 27.5 yrs straight line
4. Nonresidential real property: 39 yrs straight line
5. Mid month conversion required (1/2 months for first and last months)

Question 2

MACRS 5 yr property class

Answer 2

Automobiles, light trucks, computers, copiers

Question 3

MACRS 7 yr property class

Answer 3

Furniture, fixtures, machinery, equipment

Question 4

Under MACRs, what does half-year convention provide?

Answer 4

One half of first years depreciation is allowed in year in which property is placed in service, and half a year’s depreciation is allowed for the year in which property is disposed of

Question 5

Exception to half year convention

Answer 5

If more than 40% of property is placed in service in last quarter of taxable year, must use mid-quarter convention

Question 6

Amortization of intangible assets - tax rule

Answer 6

Amortize straight line (full month convention) for 180 months (15 yrs)

Question 7

Amortization of intangible assets- GAAP rule

Answer 7

Subject to impairment

Intangibles with finite lives: amortize over life of asset

Intangibles with infinite lives: not amortized