R3: Cost Recovery

Question 1

MACRS salvage value

Answer 1

salvage value is ignored for the purposes of computing MACRS depreciation

Question 2

Straight-line option

Answer 2

The taxpayer can elect to use straight-line depreciation over MACRS depreciation

Question 3

Recovery period for residential property

Answer 3

27.5 years

Question 4

Recovery period for commercial property

Answer 4

39 years

Question 5

Half-year convention for MACRS

Answer 5

Take half a year of depreciation in the year of purchase and half depreciation in the year of disposal

Question 6

To qualify for 179 expense of property

Answer 6

1. The property must be for the use of the taxpayer’s business
2. Cannot be purchased from a related party

Question 7

Mid-quarter convention

Answer 7

When 40% or more assets are purchased in the last quarter, the mid-quarter convention must be used

Question 8

Intangible assets (including goodwill)

Answer 8

Amortized for 15 years (180 months)

Question 9

Mid-month convention

Answer 9

For residential and commercial property, MACRS assumes that the property is placed in service in the middle of the month it was purchased (15th)
example: building placed in service on aug 1 will be considered placed in service aug 15 for tax purposes

Question 10

MACRS 5 year property

Answer 10

Autos, light trucks, delivery vans, computers, typewriters, copiers

Question 11

MACRS 7 year property

Answer 11

Office furniture, fixtures, equipment

Question 12

Section 179 depreciation after the limit

Answer 12

Limit $1,020,000
Threshold: $2,550,000
Calculation

Limit: 1,020,000
+ Excess $ x depreciation rate = maximum deductible amount*

*subject to taxpayer’s income

Question 13

The depreciable base for tax purposes

Answer 13

• Costs to acquire

- Costs to make the asset ready for use