Question 1

If more than 40% of the depreciable basis of personal property is placed in service during the last three months of the tax year,the taxpayer must use the mid-quarter convention.

Accepted Answer

According to IRS guidelines, if a taxpayer places more than 40% of the depreciable basis of personal property in service during the last three months of the tax year, they must use the mid-quarter convention for depreciation.

Question 2

The mid-year convention is used for personal property only.

Accepted Answer

The mid-year convention is used for personal property only, not for real estate or other types of property. It allows for a half-year's worth of depreciation in the first and last year of an asset's life.

Question 3

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.

Accepted Answer

Section 179 deduction allows business owners to deduct the full cost of qualifying assets, such as delivery equipment and computers, up to a certain dollar amount. Pedro can allocate his section 179 deduction to either or both assets.

Question 4

Which of the following assets would be allowed a depreciation deduction?
I.A truck used to provide transportation to a job site.
II.A car used for personal purposes.
III.An apartment building rented out for the production of rental income.
IV.A personal-use computer of the taxpayer.
​
A)Only statement II is correct.
B)Statements II and IV are correct.
C)Only statement I is correct.
D)Statements I and III are correct.
E)All of the assets are depreciable.

Accepted Answer

Only assets used for business or investment purposes may be depreciated for tax purposes. Therefore, statement I is correct because the truck is used for transportation related to a job, indicating business use. Statement III is correct because the apartment building is rented out and generates rental income, indicating investment use. Statement II is incorrect because the car is used for personal purposes, and statement IV is incorrect because the personal-use computer is not used for business or investment purposes.

Question 5

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

Accepted Answer

The answer of Felix purchases the franchise rights to a...

Question 6

To compute cost depletion,you must know the basis subject to depletion,the recoverable quantity of the natural resource,and the quantity of the natural resource sold during the year.

Accepted Answer

Cost depletion is calculated by dividing the basis subject to depletion by the recoverable quantity of the natural resource, and then multiplying that result by the quantity of the natural resource sold during the year. Therefore, all three pieces of information mentioned in the statement (basis subject to depletion, recoverable quantity, and quantity sold) are necessary to compute cost depletion.

Question 7

Under the computation of the alternative minimum tax,the Alternative Depreciation System may be used but is not required.

Accepted Answer

Under the computation of the alternative minimum tax (AMT), taxpayers are required to use the Alternative Depreciation System (ADS) for certain types of property, making it not merely an option but a requirement for AMT purposes.

Question 8

Which of the following would be allowed a depreciation deduction?
I.Inventory.
II.Land acquired as an investment.
III.Residence used as rental property.
IV.Airplane used by company controller to attend accounting conference.
​
A)Only statement III is correct.
B)Only statement IV is correct
C)Statements III and IV are correct.
D)Statements II, III, and IV are correct.
E)All of the assets are depreciable.

Accepted Answer

Only assets used in a trade or business or for the production of income are depreciable. Therefore, statements II (land acquired as an investment) and I (inventory) cannot be depreciated. However, statement III (a residence used as rental property) and statement IV (an airplane used for business travel) can be depreciated because they are used for income-producing purposes.

Question 9

The Section 179 expense deduction is allowed on all depreciable and tangible property used in a trade or business.

Accepted Answer

The Section 179 expense deduction is not allowed on all depreciable and tangible property; it is specifically excluded for certain properties like inventory, land, investment property, and buildings, among others. It primarily applies to tangible, depreciable personal property used in the active conduct of a trade or business.

Question 10

Under current law,taxpayers must use regular MACRS.

Accepted Answer

Taxpayers have the option to use different depreciation methods, including MACRS (Modified Accelerated Cost Recovery System), but they are not strictly required to use regular MACRS for all assets. Other methods, such as straight-line depreciation, may be used depending on the asset and circumstances.

Question 11

MACRS eliminates several sources of potential conflict between the IRS and taxpayers concerning an asset's useful life and the calculation of the depreciation deduction.

Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) provides specific guidelines and tables for determining the useful life of assets and the appropriate depreciation deduction. This reduces the potential for disagreements between taxpayers and the IRS regarding these calculations.

Question 12

Which of the following would not be allowed a depreciation deduction?
I.Inventory.
II.Business equipment.
III.Land acquired as an investment.
IV.Cattle used in a dairy herd.
​
A)Only statement I is correct.
B)Statements I and III are correct.
C)Statements I, III and IV are correct.
D)Only statement IV is correct.
E)All of the assets are depreciable.

Accepted Answer

Inventory cannot be depreciated, as it is not a long-term asset. Land acquired as an investment may not be depreciated either, as it is not used in business operations. Business equipment and cattle used in a dairy herd can both be depreciated.

Question 13

The earlier the depreciation deduction can be taken,the greater the present value of the tax savings will be to the taxpayer.

Accepted Answer

The statement is true. Taking the depreciation deduction earlier means that the taxpayer can receive the tax savings sooner, which has greater present value than receiving the savings later.

Question 14

MACRS applies to new and used depreciable personal property used for the production of income.

Accepted Answer

MACRS stands for Modified Accelerated Cost Recovery System and is the method used for calculating depreciation on assets used in income-producing activities, and can be applied to both new and used depreciable personal property.

Question 15

While Congress has enacted several different depreciation methods,all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Accepted Answer

This statement is true. Depreciation methods can vary based on the type of asset and the year it was placed in service, but assets currently owned are depreciated using the method that was in effect at the time they were initially placed in service.

Question 16

Periodic capital recovery deductions for tax purposes include
I.Depletion.
II.Amortization.
III.Depreciation.
IV.Proration.
​
A)Statements I and III are correct.
B)Only statement I is correct.
C)Statements I, II and III are correct.
D)Statements I, II, and IV are correct.
E)Statements I, II, III, and IV are correct.

Accepted Answer

Depletion, amortization, and depreciation are all methods of allocating the cost of an asset over its useful life for tax purposes, which allows for capital recovery. Proration is not a method of capital recovery.

Question 17

Which of the following assets would not be allowed a depreciation deduction?
I.A business computer used to process payroll and maintain a company's general ledger.
II.A personal residence of a taxpayer.
III.A building rented out for the production of rental income.
IV.A yacht rented to a fishing party.
​
A)Only statement II is correct.
B)Statements II and IV are correct.
C)Only statement I is correct.
D)Statements I and III are correct.
E)All of the assets are depreciable.

Accepted Answer

A personal residence of a taxpayer is not allowed a depreciation deduction because depreciation is only applicable to assets used in a business or income-producing activity. Personal use property, like a personal residence, does not qualify for depreciation.

Question 18

Sally purchased new equipment for her consulting business.She allocates the Section 179 deduction among the new assets.One piece of equipment cost $500,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $250,000.

Accepted Answer

This is correct according to the rules of Section 179 deduction, which allows for a maximum deduction of $1 million for qualifying property placed in service during the tax year. The deduction is limited to the cost of the property or $1 million, whichever is less. If Sally allocated one-half of the deduction to the equipment that cost $500,000, then the depreciable basis of that equipment would be $250,000.

Question 19

In most cases,the taxpayer may continue to use percentage (statutory)depletion after the initial basis has been fully recovered.In other words,the taxpayer's depletion deduction can exceed the cost of the depletable asset.

Accepted Answer

This is true. Once the initial basis has been fully recovered, the taxpayer may continue to use percentage (statutory) depletion to calculate the depletion deduction. This means that the taxpayer's depletion deduction can exceed the cost of the depletable asset.

Question 20

To be considered predominately used in a trade or business under the listed property rules,more than 75% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Accepted Answer

To be considered predominately used in a trade or business under the listed property rules, more than 50% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

If more than 40% of the depreciable basis of personal property is placed in service during the last three months of the tax year,the taxpayer must use the mid-quarter convention.

The mid-year convention is used for personal property only.

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer. ​

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

To compute cost depletion,you must know the basis subject to depletion,the recoverable quantity of the natural resource,and the quantity of the natural resource sold during the year.

Under the computation of the alternative minimum tax,the Alternative Depreciation System may be used but is not required.

Which of the following would be allowed a depreciation deduction? I.Inventory. II.Land acquired as an investment. III.Residence used as rental property. IV.Airplane used by company controller to attend accounting conference. ​

The Section 179 expense deduction is allowed on all depreciable and tangible property used in a trade or business.

Under current law,taxpayers must use regular MACRS.

MACRS eliminates several sources of potential conflict between the IRS and taxpayers concerning an asset's useful life and the calculation of the depreciation deduction.

Which of the following would not be allowed a depreciation deduction? I.Inventory. II.Business equipment. III.Land acquired as an investment. IV.Cattle used in a dairy herd. ​

The earlier the depreciation deduction can be taken,the greater the present value of the tax savings will be to the taxpayer.

MACRS applies to new and used depreciable personal property used for the production of income.

While Congress has enacted several different depreciation methods,all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Periodic capital recovery deductions for tax purposes include I.Depletion. II.Amortization. III.Depreciation. IV.Proration. ​

Sally purchased new equipment for her consulting business.She allocates the Section 179 deduction among the new assets.One piece of equipment cost $500,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $250,000.

In most cases,the taxpayer may continue to use percentage (statutory)depletion after the initial basis has been fully recovered.In other words,the taxpayer's depletion deduction can exceed the cost of the depletable asset.

To be considered predominately used in a trade or business under the listed property rules,more than 75% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer.

Which of the following would be allowed a depreciation deduction? I.Inventory. II.Land acquired as an investment. III.Residence used as rental property. IV.Airplane used by company controller to attend accounting conference.

Which of the following would not be allowed a depreciation deduction? I.Inventory. II.Business equipment. III.Land acquired as an investment. IV.Cattle used in a dairy herd.

Periodic capital recovery deductions for tax purposes include I.Depletion. II.Amortization. III.Depreciation. IV.Proration.