R3-M4&M5

Question 1

Sales between related parties: treatment of losses

Answer 1

No deduction

-gain recognized on later resale is reduced by any of disallowed loss(only until 0)

Question 2

Section 179 depreciation

Answer 2

• must be tangible personal property
• used in business
• purchased by an unrelated party

Question 3

Half-year convention

Answer 3

• 6 months of depreciation is taken in the year of acquisition and the year of disposal
• Automatically accounted for in yr 1 but must be reduced by half in year of sale

Question 4

Mid-quarter convention

Answer 4

• used when >40% of taxpayer’s property (not including real property) is placed in service the last 3 months of a tax year (the last qr)
• treats all property placed in service during any quarter as being place in service at the mid-point of the quarter (does not affect convention used on prior purchased property)

Question 5

MACRS 5 year property

Answer 5

Cars, trucks, computers, copiers

Question 6

MACRS 7 year property

Answer 6

Office furniture and fixtures, equipment, railroad track

Question 7

Depreciable basis

Answer 7

Cost of depreciable property

• does NOT include land
• does not include taxes

Question 8

Mid-month convention

Answer 8

Used for calculating the depreciation of buildings (real property)
Useful life:
27.5 years for residential rental real estate
39 yrs nonresidental real property
-treated as being placed into service in the middle of the month of acquisition

Question 9

Amortization period for intangibles

Answer 9

• Straight line for 15 years (180 months)
• Begins in month of acquisition
• Goodwill, licenses, franchises, trademarks & covenants not to compete

Question 10

MACRS recovery method:

Answer 10

200% decline balance

• estimated salvage value is not relevant
• taxpayers may elect straight line instead

Question 11

When net loss before MACRS exists:

Answer 11

• Section 179 can not be taken, must be carried forward until deduction does not cause a loss
• MACRS deductions allowed in full