Question 1

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

Accepted Answer

This statement is true. A taxpayer can elect to use the alternative depreciation system (ADS) for various reasons, including to reduce their taxable income or to comply with certain tax laws or regulations. Additionally, the ADS may result in different depreciation deductions compared to the standard Modified Accelerated Cost Recovery System (MACRS) and may affect a company's earnings and profits.

Question 2

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

Accepted Answer

Under § 274 of the Internal Revenue Code, any listed property (such as vehicles, computers, or cameras) used partly for business or investment purposes is subject to substantiation requirements in order to claim deductions or credits. These requirements include keeping detailed records of the property's business use and maintaining receipts or other documentation to support claims.

Question 3

MACRS depreciation is used to compute earnings and profits.

Accepted Answer

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

Question 4

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 5

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

Accepted Answer

The ADS convention for real property is the mid-month convention, which means that depreciation for a specific month is calculated as if the property was placed in service in the middle of that month.

Question 6

If an automobile is placed in service in 2017, the limitation for cost recovery in 2019 will be based on the cost recovery limits for the year 2017.

Accepted Answer

The cost recovery limits for an automobile are based on the year the automobile was placed in service, not the current year. Therefore, if an automobile was placed in service in 2017, the cost recovery limits for 2017 would apply in 2019.

Question 7

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 8

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 9

A used $35,000 automobile that is used 100% for business is placed in service in 2017. 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, no cost recovery will be recaptured because the automobile was placed in service in 2017 and the cost recovery period for a passenger automobile is 5 years.

Question 10

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, regardless of whether the full amount can be expensed in the current year. This means that even if the taxable income limitation prevents the full $20,000 from being expensed in the current year, the basis of the asset will still be reduced by $20,000.

Question 11

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 12

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 its useful life, which is determined by assessing factors such as market conditions and the expected future cash flows generated from the acquisition. However, since 2015, U.S. accounting standards require that goodwill be tested for impairment annually and written down if its fair value falls below its carrying value.

Question 13

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

Even if the more-than-50% business usage test is initially passed for listed property, if the business usage drops to 50% or less during the recovery period, it can affect the depreciation deduction and other tax treatment of the property. Therefore, it is important to continue to monitor and maintain the business usage percentage for listed property.

Question 14

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

Accepted Answer

Start-up expenses can be amortized over a period of time, typically 180 months (or 15 years). Therefore, it is possible for $51,000 of the total start-up expenses of $53,000 to be amortized over 180 months. The remaining $2,000 may be expensed immediately or capitalized and amortized over a different period of time depending on the specific expense.

Question 15

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 16

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 17

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 or investment property, is specifically excluded from being eligible for § 179 expensing.

Question 18

A purchased trademark is a § 197 intangible.

Accepted Answer

A purchased trademark meets the requirements of being a § 197 intangible as it is a type of intellectual property acquired in connection with the acquisition of a trade or business.

Question 19

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 20

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 based on the automobile's fair market value and the lease's term, but this amount is then adjusted by a business usage percentage. This ensures that only the portion of the lease related to business use is included as income, while the portion related to personal use is not.

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