Question 1

Which of the following depreciation conventions are not used under MACRS?

Accepted Answer

MACRS does not use the Full-month convention, which is used under straight-line depreciation method. Instead, MACRS uses the Mid-month convention for assets placed in service after June 30, 1986.

Question 2

Discuss the requirements in order for startup expenditures to be amortized under § 195.

Accepted Answer

The answer of Discuss the requirements in order for startup...

Question 3

If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight-line depreciation to slow down the cost recovery.

Accepted Answer

By using straight-line depreciation, the taxpayer can reduce their current year income and potentially increase their net operating loss carryover, which can be carried forward to future tax years to reduce taxable income. This can be advantageous for businesses experiencing temporary losses or downturns.

Question 4

Discuss the difference between the half-year convention and the mid-quarter convention.

Accepted Answer

The answer of Discuss the difference between the half-year convention...

Question 5

MACRS does not use salvage value. As a result, if a 7-year MACRS asset is held for 10 years, its adjusted basis will be zero.

Accepted Answer

The answer of MACRS does not use salvage value. As...

Question 6

Lindsey purchased a uranium interest for $10,000,000 on January 3, 2018, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018. Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000. Determine her depletion deduction for 2018.

Accepted Answer

The answer of Lindsey purchased a uranium interest for $10,000,000...

Question 7

A major objective of MACRS is to:

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) is a tax depreciation method that allows businesses to write off the cost of their assets over a fixed period. One of the major objectives of MACRS is to help companies achieve a faster write-off of their capital assets. This is accomplished by allowing them to use accelerated depreciation methods, which means they can deduct a larger percentage of the asset's cost in the early years of its useful life. This can help businesses reduce their tax liability and improve their cash flow.

Question 8

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?

Accepted Answer

The answer of Under MACRS, which one of the following...

Question 9

Discuss the criteria used to determine whether a building is residential or nonresidential realty. Also explain the tax consequences resulting from this determination if the property is placed in service in 2018.

Accepted Answer

The answer of Discuss the criteria used to determine whether...

Question 10

Which of the following is not a characteristic of MACRS for property other than real estate?

Accepted Answer

MACRS actually decreases taxable income in the early years of the asset's life by allowing greater deductions through accelerated cost recovery.

Question 11

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

Accepted Answer

The answer of Discuss the tax implications of a seller...

Question 12

Land is generally amortized, rather than being cost recovered under MACRS.

Accepted Answer

Land is not depreciable and therefore cannot be amortized or cost recovered under MACRS.

Question 13

Assets that do not decline in value on a predictable basis are not eligible for cost recovery under MACRS.

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) allows for the recovery of the cost of certain assets over a predetermined period of time based on their expected useful life. However, assets that do not decline in value on a predictable basis, such as land, are not eligible for cost recovery under MACRS.

Question 14

Under MACRS, equipment falling in the 7-year MACRS class will be cost recovered over seven tax years.

Accepted Answer

Under MACRS, equipment in the 7-year class does not have its cost recovered evenly over seven years but rather uses a predefined depreciation schedule that spans over 8 tax years.

Question 15

Discuss the reason for the inclusion amount with respect to leased automobiles.

Accepted Answer

The answer of Discuss the reason for the inclusion amount...

Question 16

Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

Accepted Answer

The answer of Discuss the tax consequences of listed property...

Question 17

The amount of startup expenditures that can be deducted in the year incurred is the greater of the actual amount of such expenses or $5,000.

Accepted Answer

The amount of startup expenditures that can be deducted in the year incurred is up to $5,000, but this amount is reduced by the amount by which the total startup costs exceed $50,000.

Question 18

Under MACRS, the double-declining balance method is used for property other than real estate with a recovery period of 15 or 20 years.

Accepted Answer

Under MACRS, the double-declining balance method is generally used for most types of property, but real estate typically uses the straight-line method, and the specific recovery periods for property under MACRS do not dictate the use of the double-declining balance method based on a 15 or 20-year classification.

Question 19

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar-year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize?

Accepted Answer

The answer of On May 5 of the current tax...

Question 20

When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being allocated to goodwill and covenants not to compete, rather than depreciable assets.

Accepted Answer

The answer of When a business is being purchased, if...

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