R3 - Cost Recovery

Question 1

Depreciation Methods

Answer 1

IBM!
179
Bonus
MACRS

Question 2

Machinery and Equipment

Answer 2

Half-Year convention

Mid-Quarter convention

Question 3

Mid-Month convention

Answer 3

• Real property
• Salvage value ignored
• Take half month depreciation when acquired and another half month when disposed of.

Question 4

Half-Year Convention

Answer 4

• Personal property
• In year you buy it, and year you sell it. It assumes you had asset for 6mo in year you buy and year you sell, no matter in which month acquired/sold.
• Must calculate 1/2 year at the year of disposal.

Question 5

Mid-Quarter Convention

Answer 5

• Personal property
• Used when >40% of the depreciable personal property is placed in service in the last quarter of the year, the mid-quarter convention must be used.

Question 6

Sec 179

Answer 6

• Real and personal property business use
• 2020 Allowance = $1,040,000
• Reduced $ by $ for amounts >$2,059,000
• Can’t create a loss; limited to taxable income
• SUV’s can only be expensed up to $25.9K
• QIP can get sec 179 for non-residential.

Question 7

Bonus Depreciation

Answer 7

• Personal NEW property
• Take after Sec 179; before MACRS.
• 100% through 2022; drops 20% each year after that.
• Additional 8,000 on vehicles is allowed.

Question 8

Cost Depletion (GAAP)

Answer 8

Depletion cost per unit * # of units sold

Question 9

Depletion Unit Rate

Answer 9

Basis of property / Recoverable units

• Must be re-calculated every year
• Basis limitation = Depletion can’t be more than basis.

Question 10

Percentage Depletion (Tax Only)

Answer 10

15% of revenue; limited to 50% of taxable income.

Question 11

Amortization (Tax)

Answer 11

15 Yr - SL

Question 12

Section 295 Recap

Answer 12

• Applies only to C-Corps

- 20% of lesser of Accum Depr or recognized gain.