R2 M3- Cost Recovery

Question 1

5-year Property: Cars, light, trucks, computers, copiers (Half year or mid- quarter).

7-year Property: Office furniture, fixtures, equipment (Half year or mid- quarter).

27.5-year Property: Residential real estate (Mid-month)

39-year Property: Non-residential real estate

Answer 1

Examples

• 39-year Property: (Storage facility , Warehouse)
• 5-year Property: Cars, light, trucks, computers, copiers, delivery truck, Delivery van.
• Intangible Property (Goodwill)
• 7 year Property: Forklift

Question 2

5-year Property: Cars, light, trucks, computers, copiers (Half year or mid- quarter).

7-year Property: Office furniture, fixtures, equipment (Half year or mid- quarter).

27.5-year Property: Residential real estate (Mid-month)

39-year Property: Non-residential real estate

Answer 2

Examples

• 39-year Property: (Storage facility , Warehouse)
• 5-year Property: Cars, light, trucks, computers, copiers, delivery truck, Delivery van.
• Intangible Property (Goodwill)
• 7 year Property: Forklift

Question 3

Continuation of question 2–> Side note we don’t mix real property and personal property for MACRS Depreciation.

Answer 3

Question 4

This is the mid-quarter for the four quarter because it was put in service in October

Answer 4

I confused the mid-month month period service vs the year in the half year convention. For example: half year convention Oct year 5 ( first time its place into service ) in the table you would start in year 1 as the first year its placed in service. In terms of the year its applicable for mid-month as well

Question 5

This follows flash card 3 with the mid-quarter but this time its the mid-quarter for the third quarter. It was put in service in September. They are in the same year it was put in service Year 5

Question 6

What type of property do we have:

1. Personal property (things you can touch but not land or building)
2. Real property (things you can touch that are land or building)
3. Intangible Property (things you can’t touch)

Basis * MACRS Depreciation Factor = Current year cost recovery

Special issues:
- Land is never depreciated
- MACRS table account for the depreciation

Answer 6

Deprciable lives (most common)

Personal property:
- 5 years (Computer equipment, automobiles
- 7 years - Furniture, fixtures, machinery, and equipment

Real property:
- 27.5 years - Residential real property: (you can live in it).
- 39 years - Nonresidential property (you can’t live in it) –> warehouse, storage facility.

Intangible property:
- 180 months (15 years) for most intangible (but not all)

MACRS Conventions (stick with assets based on year of purchase):
Personal Property:
- Half year (default)
- Mid- quarter ( if more than 40% of personal property was placed in service in 4th quarter)

Real Property:
- mid month (more specific)

Intangible property:
- Full month

Question 7

Answer 7

Question 8

Answer 8

Question 9

Answer 9

Question 10

Answer 10

Choice “D” is correct. The computer is 5-year property. It was purchased in Year 3, so that is recovery period 1. The MACRS depreciation for Year 3 is $1,000 ($5,000 × 20%). Note that the half-year convention is built into the table. No adjustment is necessary.

Choice “A” is incorrect. $500 would be correct if we used 10% for 10-year property.

Choice “B” is incorrect. $715 would be correct if we used 14.29% for 7-year property.

Choice “C” is incorrect. $960 would be correct if we used 19.2% for recovery period 3.