Tax Chapters 10-14 Flashcards
1
Q
What is another term for depreciation?
A
Cost recovery
2
Q
What is the difference between allowed and allowable depreciation?
A
Allowed - what was taken
Allowable - slowest method under the law
3
Q
The first step in calculating depreciation is to classify the property as ____ or ____.
A
Real
Personal
4
Q
What is the difference between personal and real property?
A
Personal property can be moved
5
Q
What type of real property is not depreciable?
A
Land
6
Q
When calculating the depreciation of real property, determine if the property is a _______ property or not.
A
Residential rental
7
Q
Real property uses _____ depreciation with a ______ convention.
A
Straight-line
Mid-month
8
Q
Which depreciation table is used for residential rental property?
A
Table 7
9
Q
What is the tax life of a residential rental property?
A
27.5
10
Q
Which depreciation table is used for nonresidential real property?
A
Table 9
11
Q
What is the tax life of non-residential real property?
A
39 years
12
Q
When personal-use property is converted to business property, what is the new adjusted basis?
A
The lesser of the adjusted basis or FMV
13
Q
What is the depreciation system required for most assets?
A
MACRS
14
Q
A ______ convention is generally required for all tangible personal property.
A
Half-year
15
Q
Which depreciation table is used for personal property with a half year convention?
A
Table 1
16
Q
Which depreciation tables are used for personal property with a mid-quarter convention?
A
Tables 2-5
17
Q
What does a half-quarter convention imply?
A
That property was placed in service and disposed of mid-month
18
Q
Almost all personal property is ___ or ____ year property.
A
5, 7
19
Q
Automobiles and computers are ___ year property.
A
5
20
Q
Furniture and equipment are ___ year properties.
A
7
21
Q
Section 179 allows taxpayers to expense up to _____ of the acquisition cost of _________ as an ordinary deduction in the year the property is placed in service.
A
$500,000
tangible personal business property
22
Q
Property used in a rental activity (does, does not) qualify for the Sec. 179 election.
A
does not
23
Q
The dollar for dollar phaseout of the Sec. 179 election begins at ______.
A
$2,000,000
24
Q
Section 179 expensing is _____ (mandatory, elected).
A
elected
25
A section 179 deduction _____ (may, may not) exceed taxable income from the business.
may not
26
What order do the following methods of depreciation go?
MACRS
Bonus Depreciation
Sec. 179
Sec. 179, Bonus Depreciation, MACRS
27
What is the bonus depreciation rate?
50%
28
What are the 3 types of property that qualify for bonus depreciation?
1. MACRS property with a 20 year or less recovery
2. Computer software
3. Qualified leasehold improvement property
29
Is bonus depreciation elected or used by default?
Used by default
30
When is the mid-quarter convention used?
When over 40% of the property placed in service is done so in the last 3 months of the year.
31
If a taxpayer does not depreciate one of their depreciable properties, what should be done when the asset is sold?
The allowable depreciation for the skipped years needs to be taken by amending previous returns.
32
If any property with a half-year convention is disposed of, the depreciation in the year of disposition will be ____ the amount in the tables.
Half
33
If any property with a mid-quarter convention is disposed of, the numerator in the convention adjustment will be the number of full _____ plus ____.
quarters elapsed
| 0.5
34
If any property with mid-quarter convention is disposed of, the denominator in the convention adjustment will be ____.
4
35
If any property with a mid-month convention is disposed of, the numerator in the convention adjustment will be the number of full ______ plus ____.
months elapsed
| 0.5
36
If any property with mid-quarter convention is disposed of, the denominator in the convention adjustment will be ____.
12
37
What are the 2 main types of listed property?
Computers and automobiles
38
If a listed property is used for business less than 50% of the time, what type of depreciation should be used?
ADS
39
If a taxpayer is required to use ADS for listed property, what type of depreciation is not allowed?
bonus depreciation
40
If a taxpayer is not required to use ADS for listed property, but elects to use it anyway, can they take bonus depreciation?
yes
41
For an employee to depreciate listed property, what are the conditions?
The property must be for the convenience of the employer and required as a condition of employment.
42
When is recapture required for listed property?
When business use drops below 50%
43
How is listed property recaptured when business use drops below 50%?
Excess depreciation taken in prior years is added back into income in the year business use drops
44
What is the ceiling on automobiles before they are considered "luxury"?
$15,800
45
How is depreciation calculated for automobiles which cost over $15,800 and are used over 50% for business?
Take the lesser of the MACRS depreciation or the ceiling limit for luxury automobiles, then multiply by the percentage of business use.
46
How are intangible assets amortized?
Straight-line for 15 years beginning with the month of acquisition
47
How is a business's "goodwill" calculated for the purpose of amortizing intangibles?
It is the "plug" after recording the amount of all the other intangibles.
48
What is Section 197 property?
Intangible assets
49
If a Section 197 intangible asset is sold at a loss before 15 years, what is the tax treatment?
The loss is not allowed, but instead added to the basis of the remaining intangibles
50
What are the 3 ways to account for research and experimental expenditures?
1. Expense when incurred
2. Defer and amortize when project produces revenue
3. Write off when the project becomes worthless
51
What are the 3 ways software can be acquired and depreciated?
1. Off the shelf - 36 months, straight-line depreciation
2. Included with hardware - depreciate with hardware
3. Internally developed - R & E treatment
52
What does Sec. 1031 deal with?
Like-kind exchanges
53
Non-recognition for a like-kind exchange is (mandatory, elected).
Mandatory
54
In a like-kind exchange, the properties must be used in a _______ or held ______.
A trade or business or held for investment
55
In a like-kind exchange, real property can be exchanged with _____.
real property
56
What 2 items do not qualify for like-kind exchanges?
Inventory
| Securities
57
In a like-kind of exchange of personal property, the property must be nearly _____.
Identical
58
When boot is used in a like-kind exchange, the gain recognized is _____.
the smaller of realized gain or boot received.
59
In what situation is loss recognized in a like-kind exchange?
When boot is given up
60
When a like-kind exchange involves an exchange of liabilities, how is the taxable boot received determined?
Net debt relief with debt assumed
61
What is the formula for determining the basis of property received in a like-kind exchange?
Basis of property exchanged
-Boot received
+Gain recognized
-Loss recognized
62
What is the term for a gain from a casualty or theft?
Involuntary conversion
63
What does Sec. 1033 deal with?
Involuntary conversions
64
How can the entire gain in an involuntary conversion be deferred?
By using all of the insurance proceeds on qualified property
65
What is the amount of recognized gain in an involuntary conversion?
Amount realized (insurance proceeds) minus what is spent on qualified replacement property
66
In an involuntary conversion, what is the basis of the replacement property?
Cost minus deferred (unrecognized) gain
67
What test must replacement property meet in an involuntary conversion in order to defer the gain?
The functional-use test
68
What is the functional-use test in regards to involuntary conversions?
The replacement property must be functionally the same as the converted property
69
If property is condemned in an involuntary conversion, what kind of property qualifies as replacement property for deferring the gain?
Like-kind property
70
What is the time requirement for replacing property in an involuntary conversion in order to defer the gain?
Two years after the close of the first taxable year in which the insurance proceeds are received
71
What is the time requirement for replacing property in an involuntary conversion in order to defer the gain if the conversion was due to condemnation?
Three years after the close of the first taxable year in which the insurance proceeds are received
72
Are losses recognized on the sale of a principal residence?
no
73
How much gain is excluded on the sale of a principal residence?
Up to $250,000 per spouse
74
What is the "ownership and use test" for excluding gain on the sale of a principal residence?
Must own the property for 2 out of the last 5 years
Must reside in the property for 2 out of the last 5 years
75
In what circumstances may a portion of the gain on the sale of a principal residence be excluded when the ownership and use tests are not met?
Due to a change in employment, health, or unforeseen circumstances
76
When a principal residence is sold due to a change in employment, health, or unforeseen circumstances, how is the excluded amount of gain calculated?
$250,000 (or $500,000) x (number of days the ownership & use tests were met / 730 days)
77
When a residence is used as both a principal residence and a place of business, what portion of the gain on the sale of the residence is taxable?
The portion attributable to depreciation
78
What is the formula for computing AMT?
```
Taxable income
Plus AMT preference items
Plus/Minus AMT adjustments
Minus AMT exemption
Times AMT tax rate
Minus regular income tax
```
79
What are the two AMT tax rates?
$179,500 and below = 26%
| Over $179,500 = 28%
80
Are charitable contributions deductible for AMT?
Yes
81
Are medical expenses deductible for AMT?
Yes
82
Is mortgage interest deductible for AMT?
Yes
83
Are state income taxes deductible for AMT?
No
84
Are real estate taxes deductible for AMT?
No
85
What is the AMT adjustment for stock options?
The excess of the option's FMV over the price paid by the individual for the option
86
What is the maximum amount of child and dependent care expenses that qualify for the child and dependent care credit?
$3,000 for one child, $6,000 for two or more children
87
What is the earned income limit regarding the child and dependent care credit?
Maximum qualifying expenses cannot exceed the taxpayer's earned income
88
If daycare is used in order for a parent to perform charity work, are the daycare expenses deductible?
No
89
Regarding the child and dependent care credit, how much is a parent who is a full-time college student deemed to have earned?
$250 per month
90
In what situation are childcare expenses not deductible when a relative provides the services?
When the relative is a child (under 19) of the taxpayer
91
What is the rate of the child and dependent care credit for individuals with AGI over $43,000?
20%
92
How is the child and dependent care credit calculated when the taxpayer receives employer reimbursements for child care?
The $3,000 maximum per child is reduced by the amount of employer reimbursements.
93
What expenses does the American Opportunity Tax Credit cover of the following:
Tuition, required fees, student activity fees, course materials, textbooks, room and board
Tuition, required fees, course materials, textbooks
94
What is the amount of the American Opportunity Tax Credit per student?
100% of the first $2,000
| 25% of the next $2,000
95
What semester usually doesn't qualify for the American Opportunity Tax Credit and why?
The spring semester of senior year because it's generally in the 5th tax year
96
How many tax years can the American Opportunity Tax Credit be taken for each student?
4
97
Can the American Opportunity Tax Credit and the Lifetime Learning Credit be used for the same student in the same year?
No
98
What is the amount of the Lifetime Learning Credit per taxpayer?
20% of the first $10,000
99
What expenses does the Lifetime Learning Credit cover of the following:
Tuition, required fees, student activity fees, course materials, textbooks, room and board
Tuition, required fees
100
Which credit can be used for graduate students? American Opportunity or Lifetime Learning Credit?
Lifetime Learning Credit
101
What may a taxpayer opt to do rather than take a foreign tax credit?
Take a deduction for foreign taxes
102
What may happen if an employer fails to withhold federal income tax and pay the amounts to the IRS?
There could be substantial penalties, up to 100% of the amount that should have been paid
103
To avoid an underpayment penalty, total estimated tax payments must equal or exceed what safe harbor amounts?
90% of the current tax year liability
| 100% of the prior year tax liability
104
If a taxpayer does not keep books, what accounting period must he use? (Fiscal or calendar year)
Calendar year
105
Can a taxpayer ever switch between a fiscal and calendar year?
yes
106
A taxpayer's accounting method determines the ____ of revenues and expenses.
timing
107
Why might the overall amount of tax paid over several years be higher for an accrual method taxpayer than a cash method taxpayer?
Because of the progressive tax system
108
What accounting method must taxpayers with inventories use? In what special circumstance are they exempt from this rule?
Accrual....except for small businesses
109
When is a sale considered to be an installment sale?
When one or more payments is received after the end of the current tax year
110
What type of industry finds the installment sales method of accounting highly attractive?
The real estate industry
111
Can stocks be sold using the installment sales method?
no
112
When does imputed interest come into play?
When a property is sold and the payment is deferred, and interest is charged at less than the federal rate
113
When a portion of a principal payment (gain) is converted into interest income, what is this called?
Imputed interest
114
How does imputed interest work in the case of a corporate shareholder loan?
Cash is assumed to have been given to the shareholder in the form of a dividend to pay the imputed interest
115
What is another word for the recharacterization of Sec. 1245 or 1250 properties?
Recapture
116
Real or depreciable property used in a trade or business is a Sec. _____ property.
1231
117
If there are more Sec. 1231 gains than losses, how are the Sec. 1231 gains and losses treated?
As LTCGs and LTCLs
118
If there are more Sec. 1231 losses than gains, how are the Sec. 1231 gains and losses treated?
As ordinary gains and losses
119
How much of an ordinary loss is deductible in the current year?
All of it
120
How much of a LTCL is deductible in the current year?
$3,000
121
What is the 5 year lookback rule for Sec. 1231 gains?
Sec. 1231 losses previous deducted as ordinary over the past 5 years are recaptured (reclassified) as ordinary income.
122
What is the holding period for a Sec. 1231 property?
More than one year
123
Are investments a type of Sec. 1231 property?
No
124
Is inventory a type of Sec. 1231 property?
No
125
Sec. 1245 recapture prevents net Sec. 1231 gain from being treated as _____.
LTCG
126
What is Section 1245 property?
Sec. 1231 property subject to depreciation or amortization
127
How is Sec. 1245 gain computed?
The lesser of recognized gain or depreciation
128
Is Sec. 1245 gain ordinary or a LTCG?
ordinary
129
Is property depreciated using MACRS ever subject to recapture under Sec. 1250? Why or why not?
No, because MACRS is a straight-line depreciation
130
What is Section 1250 property?
Depreciable, real Sec. 1231 property
131
What is excess or additional depreciation?
The excess of accelerated depreciation over the amount that would be deducible with straight-line depreciation
132
What type of depreciation does Sec. 1250 deal with?
Excess/additional depreciation
133
What year did MACRS depreciation become a requirement?
1987
134
What is unrecaptured Sec. 1250 gain?
The amount of LTCG which would be taxed as ordinary if Sec. 1250 provided for the recapture of all depreciation instead of only additional depreciation.
135
What is the tax rate for unrecaptured Sec. 1250 gain?
25%
