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Tax Accounting > Tax Chapters 10-14 > Flashcards

Tax Chapters 10-14 Flashcards

1
Q

What is another term for depreciation?

A

Cost recovery

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2
Q

What is the difference between allowed and allowable depreciation?

A

Allowed - what was taken

Allowable - slowest method under the law

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3
Q

The first step in calculating depreciation is to classify the property as ____ or ____.

A

Real

Personal

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4
Q

What is the difference between personal and real property?

A

Personal property can be moved

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5
Q

What type of real property is not depreciable?

A

Land

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6
Q

When calculating the depreciation of real property, determine if the property is a _______ property or not.

A

Residential rental

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7
Q

Real property uses _____ depreciation with a ______ convention.

A

Straight-line

Mid-month

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8
Q

Which depreciation table is used for residential rental property?

A

Table 7

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9
Q

What is the tax life of a residential rental property?

A

27.5

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10
Q

Which depreciation table is used for nonresidential real property?

A

Table 9

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11
Q

What is the tax life of non-residential real property?

A

39 years

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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

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13
Q

What is the depreciation system required for most assets?

A

MACRS

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14
Q

A ______ convention is generally required for all tangible personal property.

A

Half-year

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15
Q

Which depreciation table is used for personal property with a half year convention?

A

Table 1

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16
Q

Which depreciation tables are used for personal property with a mid-quarter convention?

A

Tables 2-5

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17
Q

What does a half-quarter convention imply?

A

That property was placed in service and disposed of mid-month

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18
Q

Almost all personal property is ___ or ____ year property.

A

5, 7

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19
Q

Automobiles and computers are ___ year property.

A

5

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20
Q

Furniture and equipment are ___ year properties.

A

7

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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

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22
Q

Property used in a rental activity (does, does not) qualify for the Sec. 179 election.

A

does not

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23
Q

The dollar for dollar phaseout of the Sec. 179 election begins at ______.

A

$2,000,000

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24
Q

Section 179 expensing is _____ (mandatory, elected).

A

elected

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25
Q

A section 179 deduction _____ (may, may not) exceed taxable income from the business.

A

may not

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26
Q

What order do the following methods of depreciation go?

MACRS
Bonus Depreciation
Sec. 179

A

Sec. 179, Bonus Depreciation, MACRS

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27
Q

What is the bonus depreciation rate?

A

50%

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28
Q

What are the 3 types of property that qualify for bonus depreciation?

A
  1. MACRS property with a 20 year or less recovery
  2. Computer software
  3. Qualified leasehold improvement property
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29
Q

Is bonus depreciation elected or used by default?

A

Used by default

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30
Q

When is the mid-quarter convention used?

A

When over 40% of the property placed in service is done so in the last 3 months of the year.

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31
Q

If a taxpayer does not depreciate one of their depreciable properties, what should be done when the asset is sold?

A

The allowable depreciation for the skipped years needs to be taken by amending previous returns.

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32
Q

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.

A

Half

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33
Q

If any property with a mid-quarter convention is disposed of, the numerator in the convention adjustment will be the number of full _____ plus ____.

A

quarters elapsed

0.5

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34
Q

If any property with mid-quarter convention is disposed of, the denominator in the convention adjustment will be ____.

A

4

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35
Q

If any property with a mid-month convention is disposed of, the numerator in the convention adjustment will be the number of full ______ plus ____.

A

months elapsed

0.5

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36
Q

If any property with mid-quarter convention is disposed of, the denominator in the convention adjustment will be ____.

A

12

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37
Q

What are the 2 main types of listed property?

A

Computers and automobiles

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38
Q

If a listed property is used for business less than 50% of the time, what type of depreciation should be used?

A

ADS

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39
Q

If a taxpayer is required to use ADS for listed property, what type of depreciation is not allowed?

A

bonus depreciation

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40
Q

If a taxpayer is not required to use ADS for listed property, but elects to use it anyway, can they take bonus depreciation?

A

yes

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41
Q

For an employee to depreciate listed property, what are the conditions?

A

The property must be for the convenience of the employer and required as a condition of employment.

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42
Q

When is recapture required for listed property?

A

When business use drops below 50%

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43
Q

How is listed property recaptured when business use drops below 50%?

A

Excess depreciation taken in prior years is added back into income in the year business use drops

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44
Q

What is the ceiling on automobiles before they are considered “luxury”?

A

$15,800

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45
Q

How is depreciation calculated for automobiles which cost over $15,800 and are used over 50% for business?

A

Take the lesser of the MACRS depreciation or the ceiling limit for luxury automobiles, then multiply by the percentage of business use.

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46
Q

How are intangible assets amortized?

A

Straight-line for 15 years beginning with the month of acquisition

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47
Q

How is a business’s “goodwill” calculated for the purpose of amortizing intangibles?

A

It is the “plug” after recording the amount of all the other intangibles.

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48
Q

What is Section 197 property?

A

Intangible assets

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49
Q

If a Section 197 intangible asset is sold at a loss before 15 years, what is the tax treatment?

A

The loss is not allowed, but instead added to the basis of the remaining intangibles

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50
Q

What are the 3 ways to account for research and experimental expenditures?

A
  1. Expense when incurred
  2. Defer and amortize when project produces revenue
  3. Write off when the project becomes worthless
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51
Q

What are the 3 ways software can be acquired and depreciated?

A
  1. Off the shelf - 36 months, straight-line depreciation
  2. Included with hardware - depreciate with hardware
  3. Internally developed - R & E treatment
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52
Q

What does Sec. 1031 deal with?

A

Like-kind exchanges

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53
Q

Non-recognition for a like-kind exchange is (mandatory, elected).

A

Mandatory

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54
Q

In a like-kind exchange, the properties must be used in a _______ or held ______.

A

A trade or business or held for investment

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55
Q

In a like-kind exchange, real property can be exchanged with _____.

A

real property

56
Q

What 2 items do not qualify for like-kind exchanges?

A

Inventory

Securities

57
Q

In a like-kind of exchange of personal property, the property must be nearly _____.

A

Identical

58
Q

When boot is used in a like-kind exchange, the gain recognized is _____.

A

the smaller of realized gain or boot received.

59
Q

In what situation is loss recognized in a like-kind exchange?

A

When boot is given up

60
Q

When a like-kind exchange involves an exchange of liabilities, how is the taxable boot received determined?

A

Net debt relief with debt assumed

61
Q

What is the formula for determining the basis of property received in a like-kind exchange?

A

Basis of property exchanged
-Boot received
+Gain recognized
-Loss recognized

62
Q

What is the term for a gain from a casualty or theft?

A

Involuntary conversion

63
Q

What does Sec. 1033 deal with?

A

Involuntary conversions

64
Q

How can the entire gain in an involuntary conversion be deferred?

A

By using all of the insurance proceeds on qualified property

65
Q

What is the amount of recognized gain in an involuntary conversion?

A

Amount realized (insurance proceeds) minus what is spent on qualified replacement property

66
Q

In an involuntary conversion, what is the basis of the replacement property?

A

Cost minus deferred (unrecognized) gain

67
Q

What test must replacement property meet in an involuntary conversion in order to defer the gain?

A

The functional-use test

68
Q

What is the functional-use test in regards to involuntary conversions?

A

The replacement property must be functionally the same as the converted property

69
Q

If property is condemned in an involuntary conversion, what kind of property qualifies as replacement property for deferring the gain?

A

Like-kind property

70
Q

What is the time requirement for replacing property in an involuntary conversion in order to defer the gain?

A

Two years after the close of the first taxable year in which the insurance proceeds are received

71
Q

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?

A

Three years after the close of the first taxable year in which the insurance proceeds are received

72
Q

Are losses recognized on the sale of a principal residence?

A

no

73
Q

How much gain is excluded on the sale of a principal residence?

A

Up to $250,000 per spouse

74
Q

What is the “ownership and use test” for excluding gain on the sale of a principal residence?

A

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
Q

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?

A

Due to a change in employment, health, or unforeseen circumstances

76
Q

When a principal residence is sold due to a change in employment, health, or unforeseen circumstances, how is the excluded amount of gain calculated?

A

$250,000 (or $500,000) x (number of days the ownership & use tests were met / 730 days)

77
Q

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?

A

The portion attributable to depreciation

78
Q

What is the formula for computing AMT?

A 
Taxable income
Plus AMT preference items
Plus/Minus AMT adjustments
Minus AMT exemption
Times AMT tax rate
Minus regular income tax
79
Q

What are the two AMT tax rates?

A

$179,500 and below = 26%

Over $179,500 = 28%

80
Q

Are charitable contributions deductible for AMT?

A

Yes

81
Q

Are medical expenses deductible for AMT?

A

Yes

82
Q

Is mortgage interest deductible for AMT?

A

Yes

83
Q

Are state income taxes deductible for AMT?

A

No

84
Q

Are real estate taxes deductible for AMT?

A

No

85
Q

What is the AMT adjustment for stock options?

A

The excess of the option’s FMV over the price paid by the individual for the option

86
Q

What is the maximum amount of child and dependent care expenses that qualify for the child and dependent care credit?

A

$3,000 for one child, $6,000 for two or more children

87
Q

What is the earned income limit regarding the child and dependent care credit?

A

Maximum qualifying expenses cannot exceed the taxpayer’s earned income

88
Q

If daycare is used in order for a parent to perform charity work, are the daycare expenses deductible?

A

No

89
Q

Regarding the child and dependent care credit, how much is a parent who is a full-time college student deemed to have earned?

A

$250 per month

90
Q

In what situation are childcare expenses not deductible when a relative provides the services?

A

When the relative is a child (under 19) of the taxpayer

91
Q

What is the rate of the child and dependent care credit for individuals with AGI over $43,000?

A

20%

92
Q

How is the child and dependent care credit calculated when the taxpayer receives employer reimbursements for child care?

A

The $3,000 maximum per child is reduced by the amount of employer reimbursements.

93
Q

What expenses does the American Opportunity Tax Credit cover of the following:

Tuition, required fees, student activity fees, course materials, textbooks, room and board

A

Tuition, required fees, course materials, textbooks

94
Q

What is the amount of the American Opportunity Tax Credit per student?

A

100% of the first $2,000

25% of the next $2,000

95
Q

What semester usually doesn’t qualify for the American Opportunity Tax Credit and why?

A

The spring semester of senior year because it’s generally in the 5th tax year

96
Q

How many tax years can the American Opportunity Tax Credit be taken for each student?

A

4

97
Q

Can the American Opportunity Tax Credit and the Lifetime Learning Credit be used for the same student in the same year?

A

No

98
Q

What is the amount of the Lifetime Learning Credit per taxpayer?

A

20% of the first $10,000

99
Q

What expenses does the Lifetime Learning Credit cover of the following:

Tuition, required fees, student activity fees, course materials, textbooks, room and board

A

Tuition, required fees

100
Q

Which credit can be used for graduate students? American Opportunity or Lifetime Learning Credit?

A

Lifetime Learning Credit

101
Q

What may a taxpayer opt to do rather than take a foreign tax credit?

A

Take a deduction for foreign taxes

102
Q

What may happen if an employer fails to withhold federal income tax and pay the amounts to the IRS?

A

There could be substantial penalties, up to 100% of the amount that should have been paid

103
Q

To avoid an underpayment penalty, total estimated tax payments must equal or exceed what safe harbor amounts?

A

90% of the current tax year liability

100% of the prior year tax liability

104
Q

If a taxpayer does not keep books, what accounting period must he use? (Fiscal or calendar year)

A

Calendar year

105
Q

Can a taxpayer ever switch between a fiscal and calendar year?

A

yes

106
Q

A taxpayer’s accounting method determines the ____ of revenues and expenses.

A

timing

107
Q

Why might the overall amount of tax paid over several years be higher for an accrual method taxpayer than a cash method taxpayer?

A

Because of the progressive tax system

108
Q

What accounting method must taxpayers with inventories use? In what special circumstance are they exempt from this rule?

A

Accrual….except for small businesses

109
Q

When is a sale considered to be an installment sale?

A

When one or more payments is received after the end of the current tax year

110
Q

What type of industry finds the installment sales method of accounting highly attractive?

A

The real estate industry

111
Q

Can stocks be sold using the installment sales method?

A

no

112
Q

When does imputed interest come into play?

A

When a property is sold and the payment is deferred, and interest is charged at less than the federal rate

113
Q

When a portion of a principal payment (gain) is converted into interest income, what is this called?

A

Imputed interest

114
Q

How does imputed interest work in the case of a corporate shareholder loan?

A

Cash is assumed to have been given to the shareholder in the form of a dividend to pay the imputed interest

115
Q

What is another word for the recharacterization of Sec. 1245 or 1250 properties?

A

Recapture

116
Q

Real or depreciable property used in a trade or business is a Sec. _____ property.

A

1231

117
Q

If there are more Sec. 1231 gains than losses, how are the Sec. 1231 gains and losses treated?

A

As LTCGs and LTCLs

118
Q

If there are more Sec. 1231 losses than gains, how are the Sec. 1231 gains and losses treated?

A

As ordinary gains and losses

119
Q

How much of an ordinary loss is deductible in the current year?

A

All of it

120
Q

How much of a LTCL is deductible in the current year?

A

$3,000

121
Q

What is the 5 year lookback rule for Sec. 1231 gains?

A

Sec. 1231 losses previous deducted as ordinary over the past 5 years are recaptured (reclassified) as ordinary income.

122
Q

What is the holding period for a Sec. 1231 property?

A

More than one year

123
Q

Are investments a type of Sec. 1231 property?

A

No

124
Q

Is inventory a type of Sec. 1231 property?

A

No

125
Q

Sec. 1245 recapture prevents net Sec. 1231 gain from being treated as _____.

A

LTCG

126
Q

What is Section 1245 property?

A

Sec. 1231 property subject to depreciation or amortization

127
Q

How is Sec. 1245 gain computed?

A

The lesser of recognized gain or depreciation

128
Q

Is Sec. 1245 gain ordinary or a LTCG?

A

ordinary

129
Q

Is property depreciated using MACRS ever subject to recapture under Sec. 1250? Why or why not?

A

No, because MACRS is a straight-line depreciation

130
Q

What is Section 1250 property?

A

Depreciable, real Sec. 1231 property

131
Q

What is excess or additional depreciation?

A

The excess of accelerated depreciation over the amount that would be deducible with straight-line depreciation

132
Q

What type of depreciation does Sec. 1250 deal with?

A

Excess/additional depreciation

133
Q

What year did MACRS depreciation become a requirement?

A

1987

134
Q

What is unrecaptured Sec. 1250 gain?

A

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
Q

What is the tax rate for unrecaptured Sec. 1250 gain?

A

25%

Tax Accounting (3 decks)

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