Question 1

Under the MACRS straight-line election for personalty, only the half-year convention is applicable.

Accepted Answer

Under the MACRS (Modified Accelerated Cost Recovery System) straight-line election for personal property, taxpayers can choose between the half-year convention, mid-quarter convention, or mid-month convention, depending on the specific circumstances of when the property was placed in service.

Question 2

If more than 40% of the value of property other than real property is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

Accepted Answer

This statement is true according to IRS guidelines for determining the half-year convention for depreciation. If more than 40% of the value of property other than real property is placed in service in the last quarter, all property placed in service during the second quarter is considered to have been placed in service halfway through the calendar year, and is allowed 7.5 months of cost recovery.

Question 3

The § 179 deduction can exceed $1,020,000 in 2019 if the taxpayer had a § 179 amount that exceeded the taxable income limitation in the prior year.

Accepted Answer

The § 179 deduction limit for 2019 is $1,020,000, and it cannot exceed this amount due to prior year taxable income limitations. The § 179 deduction is limited to the taxpayer's business income, and any excess amount can be carried forward to future years, but the annual limit for the deduction itself does not increase based on prior year activities.

Question 4

Property that is classified as personalty may be depreciated.

Accepted Answer

Personal property, also known as personalty, such as equipment, vehicles, and furniture, can be depreciated for tax purposes.

Question 5

The cost recovery period for three-year class property is four years.

Accepted Answer

The answer of The cost recovery period for three-year class...

Question 6

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Accepted Answer

The maximum cost recovery method for all personal property under MACRS is actually 200% declining balance, not 150%.

Question 7

Taxpayers may elect to use the straight-line method under MACRS for personalty.

Accepted Answer

Taxpayers may elect to use the straight-line method under MACRS for personalty, as stated in the IRS guidelines.

Question 8

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

Accepted Answer

Under the mid-quarter convention, property is treated as placed in service or disposed of at the midpoint of the quarter in which it is actually placed in service or disposed of, not at the midpoint of the quarter in which it is placed in service for all transactions.

Question 9

The key date for calculating cost recovery is the date the asset is placed in service.

Accepted Answer

This is because cost recovery begins when the asset is available for use by the taxpayer, which usually occurs when the asset is placed in service.

Question 10

The factor for determining the cost recovery for eligible real estate under MACRS in the year of disposition is taken from the month of the disposition.

Accepted Answer

Under MACRS, the cost recovery for the year of disposition is determined by using the mid-month convention, which assumes the property was disposed of in the middle of the month regardless of the actual date of disposition.

Question 11

For personal property placed in service in 2019, the § 179 maximum deduction is $1,020,000.

Accepted Answer

This statement is true. The § 179 maximum deduction for personal property placed in service in 2019 is $1,020,000.

Question 12

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Accepted Answer

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year. This means that if the business income in the carryforward year exceeds the threshold limit, then the amount of § 179 expense that can be deducted in that year will be reduced. Therefore, the statement is true.

Question 13

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

The statement is true. When $20,000 is expensed under § 179, it reduces the basis of the asset even if the full amount cannot be expensed in the current year due to taxable income limitations. This reduction in basis will be taken into account in future years when the asset is sold or disposed of.

Question 14

New and used personal property placed in service in 2019 and used in a trade or business qualifies for additional first-year depreciation.

Accepted Answer

The Tax Cuts and Jobs Act (TCJA) allows for 100% bonus depreciation for qualified property, including new and used personal property, that is acquired and placed in service after September 27, 2017, and used in a trade or business. This bonus depreciation applies to assets with a recovery period of 20 years or less, and certain other property.

Question 15

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

Accepted Answer

The basis of cost recovery property must be reduced by at least the cost recovery allowable (also known as depreciation or amortization) that has been claimed during the lifetime of the property. This reduces the basis of the property and helps to ensure that the correct amount of gain or loss is recognized when the property is sold or disposed of.

Question 16

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Accepted Answer

According to IRS rules, when property is converted from personal use to business use, the cost recovery basis can be the fair market value of the property at the time of conversion. This means that the owner can start claiming depreciation deductions for the property based on its current value instead of the original cost basis. However, there are certain rules and limitations that apply, depending on the type of property and other factors.

Question 17

Land improvements are generally not eligible for cost recovery.

Accepted Answer

Land improvements such as driveways, fences, and landscaping are eligible for cost recovery through depreciation.

Question 18

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

Accepted Answer

This is true. Property that is used for the production of income, such as rental property, is not eligible for § 179 expensing. Only property used in a trade or business that is actively conducted by the taxpayer is eligible.

Question 19

The luxury auto cost recovery limits applies to all automobiles.

Accepted Answer

The luxury auto cost recovery limits specifically apply to passenger automobiles costing more than a certain amount, as defined by the IRS, and do not apply to all automobiles. These limits are designed to cap the depreciation deductions that can be taken for luxury vehicles.

Question 20

Motel buildings have a cost recovery period of 27.5 years.

Accepted Answer

Motel buildings have a cost recovery period of 39 years, not 27.5 years.

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