Section 1231 Assets - Cost Recovery Flashcards
What is cost recovery normally called?
Depreciation
What is MACRS?
Modified accelerated cost recovery system.
What is MACRS for personalty?
200% declining-balance method with a half-year convention.
What is half-year convention?
TP gets one-half year depreciation in the year of acquisition and one-half year in the year of disposal.
MACRS: how is the salvage value determined?
Always $0.
What are examples of 5 year property? 7 yr?
5: light trucks, automobiles, computers, office equip.
7: office furniture/fixtures, most equip, machinery.
MACRS table: is one-half convention included in yr 1 and the yr of sale?
Yr 1: Yes.
Yr of sale: no because the table doesn’t know which year you sell the item. Therefore, must do x 1/2 to get the rate.
Is 200% declining-balance method required?
No, TP can elect to use straight line depreciation.
What’s the rule regarding personalty placed in service during the last quarter of the taxable year?
A mid-quarter convention is used if more than 40% of all personalty is place in the period. one-half yr still applies.(x qtr/12. ex: if sold in 1st qtr, 1.5/12, 2 qtr 4.5/12, 3 qtr 7.5/12, 4 qtr 10.5/12).
What is MACRS for realty?
Straight-line depreciation with mid-month convention.
What is mid month convention?
TP gets one-half month depreciation in the month of acquisition and in the month of disposal.
What are 2 categories of realty and their depreciable life?
Residential realty (someone lives in it) - 27.5 yrs. Nonresidential realty (commercial) - 39 yrs.
Depreciation for the year? Office building Cost $264,000 (include land $30,000) in Aug 3.
264,000-30,000=234,000 x 1/39 x 4.5/12 = $2,250.
Declining method formula?
yr 1: Cost x (2/N).
yr 2: (cost - yr 1 depr.) x (2/N).
What is Section 179 rule? Limit?
TP can elect to expense certain amount of tangible personalty used in a trade or business, which must be acquired from an unrelated party.
Up to $510,000 (2017).
What is an example of item NOT eligible for Sec. 179? Are new or used property eligible?
Investment property, rental property, realty.
Yes to both.
What are 2 limitations on Sec. 179 deduction?
- The annual limit for this deduction is reduced dollar-for-dollar for personalty placed in service during the year that exceeds a threshold ($2,030,000 in 2017). This reduction does not create a carry forward to future tax yrs.
- Sec. 179 expense can’t exceed the taxable income from the business. Any excess is carried forward to future taxable yrs indefinitely.
What happens to the basis of the property when taking Sec. 179 deduction?
Reduced by the Sec. 179 amount, even if the deduction is limited by the taxable income rule (because the excess is carried forward and will be expensed).
What is bonus depreciation?
TP can select to immediately depreciate 50% (2017,2016) of many types of PERSONALTY.
The remaining basis is depreciated under regular MACRS.
Can Sec. 179 and bonus depreciation used together? If yes, which one first?
Yes. Sec. 179 first.
Does bonus depreciation apply to both new and used?
Only to new property.
What is the rule re: alternative minimum tax and bonus depreciation?
Alternative minimum tax (AMT) adjustments are not required for property for which bonus depreciation has been elected.
What is luxury auto limits?
Depreciation amount is limited on a passenger automobile (6000 pounds or less).
Luxury auto limits: what is the assumption? If stated otherwise, how to determine the rate?
Assumes 100% business/investment use.
For mixed-use auto, the limit is multiplied by % of business/investment use.
