Question 1

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

An election to use the straight-line method under the Alternative Depreciation System (ADS) is generally made on a class-by-class basis for tangible property, not on an asset-by-asset basis, except for certain eligible real property for which an election can be more specific.

Question 2

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Accepted Answer

This is true. Percentage depletion is a tax deduction that allows taxpayers in certain industries, such as mining or oil and gas, to deduct a percentage of their gross income from the sale of natural resources from their taxable income. This deduction can often exceed the cost of the asset, resulting in a tax benefit for the taxpayer.

Question 3

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

Accepted Answer

All listed property, which includes cars, computers, and other tangible property, is subject to the substantiation requirements of § 274. This means that taxpayers must keep detailed records and be able to prove the business use of these items in order to claim a deduction. Failure to comply with these requirements may result in the disallowance of the deduction.

Question 4

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

The recovery period is a five-year period during which the business usage of listed property is tracked. If the business usage drops to 50% or less during this period, the taxpayer may have to recapture some of the depreciation that was previously taken. Therefore, it still matters if the business usage drops to 50% or less during the recovery period.

Question 5

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

Accepted Answer

Under the alternative depreciation system (ADS), the mid-quarter convention or the full-month convention is used instead of the half-year convention.

Question 6

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Accepted Answer

This statement accurately defines the calculation of cost depletion.

Question 7

A used $35,000 automobile that is used 100% for business is placed in service in 2019. If the automobile fails the
50% business usage test in the second year, no cost recovery will be recaptured.

Accepted Answer

The statement is false. If the automobile fails the 50% business usage test in the second year, cost recovery may need to be recaptured.

Question 8

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...

Question 9

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

Accepted Answer

The answer of A taxpayer must use the alternative depreciation...

Question 10

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, which means that a half-month of depreciation is taken in the first and final year of usage.

Question 11

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 period of time, typically not exceeding 10 years, for accounting and tax purposes. However, the amount of goodwill that can be amortized is subject to impairment testing, which may require the write-down of the goodwill if its value declines below its carrying amount.

Question 12

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 13

A purchased trademark is a § 197 intangible.

Accepted Answer

A purchased trademark is considered a § 197 intangible asset under the United States Internal Revenue Code. This means that it is eligible for certain tax benefits and can be amortized over a 15-year period for tax purposes.

Question 14

If an automobile is placed in service in 2019, the limitation for cost recovery in 2021 will be based on the cost recovery limits for the year 2019.

Accepted Answer

The cost recovery limits for an automobile are determined in the year the automobile is placed in service, and this initial determination remains in effect for the entire recovery period of the automobile. Therefore, the limitation for cost recovery in 2021 will be based on the cost recovery limits for the year the automobile was placed in service, which in this case is 2019.

Question 15

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

Accepted Answer

The inclusion amount for a leased automobile is calculated by multiplying the fair market value of the vehicle by an income inclusion percentage determined by the IRS. This percentage is then reduced by a business usage percentage if the vehicle is used for business purposes.

Question 16

Intangible drilling costs are capitalized and recovered through depletion.

Accepted Answer

Intangible drilling costs are usually deducted as expenses in the year they are incurred, not capitalized and recovered through depletion.

Question 17

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 18

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 19

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

Accepted Answer

Amortization is the process of spreading the cost of an expense over a period of time, usually the useful life of the asset or expense. In this case, $51,000 of the startup expenses are being amortized over 180 months, which means they are being spread out over a period of 15 years. The remaining $2,000 may or may not be amortized depending on the nature of the expenditure.

Question 20

The amortization period for $58,000 of startup expenses is 180 months.

Accepted Answer

The given information states that the amortization period for $58,000 of startup expenses is 180 months, which means that the startup expenses will be paid off over a period of 180 months or 15 years.

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