Question 1

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Accepted Answer

This statement is true. If the straight-line method yields a higher annual depreciation amount than the declining balance method, the MACRS depreciation tables will switch to the straight-line method.

Question 2

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Accepted Answer

The statement is false. Expenses to purchase, prepare the asset for use, and begin using the asset are not immediately expensed, but are added to the asset's capitalized cost basis.

Question 3

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Accepted Answer

The taxpayer must use the mid-quarter convention for the year of acquisition, not the year of disposition.

Question 4

Taxpayers use the half-year convention for all assets.

Accepted Answer

The half-year convention is one option for depreciation, but taxpayers can also use other conventions such as the mid-quarter convention or the mid-month convention depending on the type of asset and the date it was placed in service.

Question 5

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Accepted Answer

The §179 immediate expensing election does indeed phase out based on the amount of tangible personal property placed in service during the year. This means that if a taxpayer places a large amount of property in service during the year, they may not be able to fully take advantage of the §179 election.

Question 6

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather thanby the amount of the allowable depreciation.

Accepted Answer

If a business mistakenly claims too little depreciation, the business must adjust the basis of the asset by the difference between the amount of depreciation actually taken and the amount of allowable depreciation. This adjustment is necessary to accurately reflect the true value of the asset and the corresponding tax liability.

Question 7

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

Accepted Answer

Property expensed under §179 is not subject to the 40 percent test, and therefore it is not included in the determination of whether the mid-quarter convention applies.

Question 8

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Accepted Answer

The §179 immediate expensing election phases out based on the amount of qualifying property placed in service during the tax year, not the taxpayer's taxable income.

Question 9

All taxpayers may use the §179 immediate expensing election on certain property.

Accepted Answer

Not all taxpayers can use the §179 immediate expensing election because it is subject to limitations such as business income limits, and it is only available for certain types of property and to taxpayers who meet specific criteria.

Question 10

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Accepted Answer

MACRS is a tax depreciation system used in the United States.

Question 11

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

Accepted Answer

The answer of If a taxpayer places only one asset...

Question 12

Real property is depreciated using the straight-line method.

Accepted Answer

Real property, such as buildings, is typically depreciated using the straight-line method over a period of 27.5 years for residential properties or 39 years for commercial properties.

Question 13

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Accepted Answer

Selecting longer-lived property for the §179 immediate expensing election allows the taxpayer to deduct the cost of the property in the year of purchase instead of depreciating it over the useful life of the property. This can provide a larger tax benefit if the property has a longer useful life.

Question 14

Bonus depreciation is used as a stimulus tool by tax policy makers.

Accepted Answer

Bonus depreciation allows businesses to deduct a larger portion of the cost of assets purchased in the current tax year, which can stimulate investment and economic growth. Therefore, it is often used by tax policy makers as a tool for economic stimulus.

Question 15

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Accepted Answer

This statement is true. The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion, as per IRS regulations.

Question 16

Tax cost recovery methods include depreciation, amortization, and depletion.

Accepted Answer

Tax cost recovery methods do include depreciation, amortization, and depletion.

Question 17

If a machine (seven-year property) being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciationpercentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Accepted Answer

Under the half-year convention, when a seven-year property is disposed of during the seventh year, the taxpayer must multiply the appropriate depreciation percentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Question 18

Taxpayers may use historical data to determine the recovery period for tax depreciation.

Accepted Answer

Taxpayers must use the recovery periods specified by the IRS for tax depreciation purposes, not historical data.

Question 19

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Accepted Answer

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Question 20

The mid-month convention applies to real property in the year of acquisition and disposition.

Accepted Answer

The mid-month convention is used for calculating depreciation on real property (like buildings and land improvements) for tax purposes, assuming that the property was acquired or disposed of in the middle of the month in both the year of acquisition and the year of disposition.

Quiz 2: Property Acquisition and Cost Recovery

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Taxpayers use the half-year convention for all assets.

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather thanby the amount of the allowable depreciation.

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

All taxpayers may use the §179 immediate expensing election on certain property.

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

Real property is depreciated using the straight-line method.

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Bonus depreciation is used as a stimulus tool by tax policy makers.

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Tax cost recovery methods include depreciation, amortization, and depletion.

If a machine (seven-year property) being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciationpercentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Taxpayers may use historical data to determine the recovery period for tax depreciation.

The 200 percent or double declining balance method is allowable for five- and seven-year property.

The mid-month convention applies to real property in the year of acquisition and disposition.