Question 1

The Section 179 expensing election is available on an annual basis for property purchased during the year.

Accepted Answer

Qualifying taxpayers can utilize Sec. 179 expensing each year that depreciable property is purchased.

Question 2

Under the MACRS rules,salvage value is not considered in the computation of the cost-recovery or depreciation amount.

Accepted Answer

Depreciation calculations for tax purposes takes the full property basis into account. If a depreciable asset is used for its entire tax life, its adjusted basis will be depreciated to $0.

Question 3

Section 179 allows taxpayers to immediately expense up to $510,000 for 2017 of the cost of real and personal property placed into service in a trade or business,subject to limitations.

Accepted Answer

Section 179 does generally apply to real estate.

Question 4

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

Accepted Answer

The half-year convention, which assumes that all asset acquisitions occur at midpoint of the tax year, is used.

Question 5

Under the MACRS system,depreciation rates for real property must always use the mid-month convention in the year of acquisition.

Accepted Answer

The partial year convention mandated by tax law for real property is the mid-month convention.

Question 6

Under the MACRS system,automobiles and computers are classified as seven-year property.

Accepted Answer

Automobiles and computers are five-year property.

Question 7

MACRS recovery property includes tangible personal and real property that is used in a trade or business.

Accepted Answer

Both tangible personal and real property used in a trade or business can be depreciated under MACRS.

Question 8

Land,buildings,equipment,and common stock are examples of tangible property.

Accepted Answer

Stock is intangible property.

Question 9

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.

Accepted Answer

Fourth quarter additions of personal property totaling more than 40% of total personal asset additions for the year will require the taxpayer to use the mid-quarter convention for all current year personal asset additions.

Question 10

Depreciable property includes business,investment,and personal-use assets.

Accepted Answer

Personal-use assets are not depreciable.

Question 11

Because Jim and his family enjoy camping,he bought a pickup truck last year for personal use.The truck cost $40,000.Jim is starting a landscaping business this year and will now be using the truck in the business full-time.Based on online searches,similar trucks are selling for $32,000.When determining his business income,Jim will be able to calculate depreciation on the truck,using the $40,000 cost as basis.

Accepted Answer

If personal-use property is converted to trade or business use, the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Question 12

Sec.179 tax benefits are recaptured if at any time an asset is converted to personal use.

Accepted Answer

If Sec. 179 property is converted to personal use, the recaptured amount is included in income.

Question 13

Intangible assets are subject to MACRS depreciation.

Accepted Answer

Amortization is used for cost recovery of intangible assets.

Question 14

In order for an asset to be depreciated in the year of purchase,it must be placed in service before year's end.

Accepted Answer

Purchase of an asset is not sufficient. It must be put into use.

Question 15

If personal-use property is converted to trade or business use,the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Accepted Answer

This lower of cost or market rule prevents taxpayers from taking deductions for loss on a personal asset.

Question 16

In computing MACRS depreciation in the year of disposition of personal property used in a trade or business,the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.

Accepted Answer

The half-year convention applies in the year the asset is placed in service and the year it is taken out of service.

Question 17

The basis of an asset must be reduced by the depreciation allowable.

Accepted Answer

If the taxpayer fails to take depreciation, the basis is nonetheless reduced by the depreciation allowable.

Question 18

Personal property used in a rental activity held for investment qualifies for the Section 179 expensing election.

Accepted Answer

Only property used in a trade or business qualifies.

Question 19

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Accepted Answer

A Sec. 179 deduction can be carried over if it is not fully utilized due to the taxable income limitation.

Question 20

On its tax return,a corporation will use the same depreciation,amortization and depletion methods used in its financial statements issued to shareholders.

Accepted Answer

While they follow the same concept of spreading the cost over asset lives, unique tax rules apply.

Quiz 10: Depreciation, cost Recovery, amortization, and Depletion