Question 1

Goodwill associated with the acquisition of a business cannot be amortized.

Accepted Answer

Goodwill associated with the acquisition of a business can be amortized over a limited period of time, typically up to 15 years, according to accounting standards.

Question 2

For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

Accepted Answer

The answer of For a new car that is used...

Question 3

A used $35,000 automobile that is used 100% for business is placed in service in 2018. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.

Accepted Answer

If the automobile fails the 50% business usage test in the second year, cost recovery will be recaptured.

Question 4

A taxpayer must use the alternative depreciation system ADS) to compute depreciation for earnings and profits.

Accepted Answer

This statement is true. The Internal Revenue Service requires the use of the alternative depreciation system (ADS) for certain property types, such as tax-exempt use property and certain foreign property. The adjustments made under ADS may affect the calculation of earnings and profits.

Question 5

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000, even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

Accepted Answer

When an asset is expensed under § 179, the basis of the asset is reduced by the amount expensed. This reduction in basis applies regardless of whether the full amount can be expensed in the current year due to taxable income limitations.

Question 6

For real property, the ADS convention is the mid-month convention.

Accepted Answer

The ADS convention for real property is indeed the mid-month convention, where the asset is considered to have been placed in service in the middle of the month in which it was acquired. This convention is used for tax purposes to determine the allowable depreciation deductions.

Question 7

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

Accepted Answer

The inclusion amount for a leased automobile is determined by the lease value of the vehicle, which is adjusted by a business usage percentage. The percentage is based on the ratio of the number of miles the vehicle is used for business purposes to the total number of miles the vehicle is driven during the tax year.

Question 8

The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.

Accepted Answer

The answer of The "luxury auto" cost recovery limits change...

Question 9

All listed property is subject to the substantiation requirements of § 274.

Accepted Answer

According to IRS rules, all listed property is subject to the substantiation requirements of § 274.

Question 10

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Accepted Answer

If the business usage for the property drops to 50% or less during the recovery period, the property is no longer considered listed property and may lose certain tax benefits. Therefore, it still matters even if the more-than-50% business usage test is initially passed.

Question 11

Under the alternative depreciation system ADS), the half-year convention must be used for personalty.

Accepted Answer

Under the alternative depreciation system (ADS), the half-year convention is not required; instead, ADS generally uses the straight-line method over longer recovery periods without conventions like the half-year convention.

Question 12

If an automobile is placed in service in 2018, the limitation for cost recovery in 2020 will be based on the cost recovery limits for the year 2018.

Accepted Answer

The limitations for cost recovery are based on the year the property is placed in service, not the later years. Therefore, if an automobile was placed in service in 2018, the cost recovery limits for that year would apply in 2020.

Question 13

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

Accepted Answer

The election to use the straight-line method under the Alternative Depreciation System (ADS) is made on a class-by-class basis for all property except residential rental property and nonresidential real property, for which the election is made on an asset-by-asset basis.

Question 14

A purchased trademark is a § 197 intangible.

Accepted Answer

A purchased trademark is considered a § 197 intangible asset, which is a type of intangible asset that is subject to specific tax treatment under the United States tax code.

Question 15

MACRS depreciation is used to compute earnings and profits.

Accepted Answer

The answer of MACRS depreciation is used to compute earnings...

Question 16

The luxury auto cost recovery limits applies to all automobiles.

Accepted Answer

The luxury auto cost recovery limits specifically apply to passenger automobiles that are used in a business and have a cost exceeding a certain amount set by the IRS, not to all automobiles.

Question 17

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Accepted Answer

The answer of The cost of a covenant not to...

Question 18

If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.

Accepted Answer

Amortization refers to the process of spreading the cost of an asset over a period of time. In this case, $51,000 of the startup expenses are being spread over 180 months, which is approximately 15 years. Therefore, option A is correct.

Question 19

Property used for the production of income is not eligible for § 179 expensing.

Accepted Answer

Property used for the production of income, such as rental property, is specifically excluded from qualifying for § 179 expensing.

Question 20

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

Accepted Answer

The answer of The § 179 limit for a sports...

Quiz 8: Depreciation, Cost Recovery, Amortization, and Depletion