Question 1

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 2

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

Accepted Answer

This statement is true. The mid-month convention applies to real property in the year of acquisition and disposition, which means that even if the property is only owned or sold for a portion of the year, the owner must still take into account the full month's depreciation for both the month of acquisition and the month of disposition.

Question 3

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

Accepted Answer

MACRS is the current system used for determining depreciation in the United States for tax purposes. Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Question 4

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 phase out based upon the amount of tangible personal property a taxpayer places in service during the year. The §179 immediate expensing election does indeed have a phaseout threshold based on the amount of tangible personal property placed in service during the year. If a taxpayer places more than a certain amount, the deduction begins to phase out and eventually reaches zero.

Question 5

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 6

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 qualifying assets in the year they are acquired, rather than over the asset's useful life. It is often used as a way to encourage businesses to invest in new equipment and technology, and is therefore a tool used by tax policy makers to stimulate economic growth. Bonus depreciation allows businesses to deduct the cost of qualifying property in the year it is placed in service, instead of depreciating it over several years. This encourages businesses to invest in new equipment, which can stimulate economic growth.

Question 7

Real property is depreciated using the straight-line method.

Accepted Answer

Real property, also known as real estate or buildings, is depreciated using the straight-line method which means that the same amount of depreciation expense is recognized each year over the useful life of the asset. This is different from other methods like the accelerated depreciation method, which front-loads more depreciation expense in the earlier years of the asset's life. Real property, such as buildings, are depreciated using the straight-line method according to the generally accepted accounting principles (GAAP).

Question 8

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 cost basis or fair market value, whichever is less, is used as the basis for calculating depreciation and any potential gains or losses upon disposal of the asset. This is correct according to IRS Publication 946: How to Depreciate Property. The basis for a personal-use asset that is converted to business use is generally the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Question 9

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

This statement is true. The half-year convention assumes that property is placed in service in the middle of the year, so when property is disposed of, the depreciation deduction is calculated as if it were placed in service in the middle of the final year. Therefore, the appropriate depreciation percentage from the MACRS table must be multiplied by 50 percent in order to calculate the proper depreciation expense.

Question 10

Taxpayers use the half-year convention for all assets.

Accepted Answer

The half-year convention is one option for depreciation, but taxpayers can use other conventions such as the mid-quarter convention or the full-month convention depending on the asset and circumstances.

Question 11

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

If tangible personal property is disposed of during the first quarter of a subsequent year, the taxpayer must use the half-year convention for the year of disposition, not the mid-quarter convention.

Question 12

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

Accepted Answer

This is because longer-lived property can provide a greater tax benefit over time compared to shorter-lived property. By immediately expensing the cost of the longer-lived property, the taxpayer can reduce their taxable income and potentially lower their tax liability. This is because §179 allows taxpayers to immediately deduct the cost of qualifying property in the year it is placed in service. Therefore, selecting longer-lived property will provide a greater immediate tax benefit.

Question 13

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

Accepted Answer

Tax cost recovery methods include depreciation (for tangible property), amortization (for intangible assets), and depletion (for natural resources). Tax cost recovery methods commonly used by businesses include depreciation for tangible assets, amortization for intangible assets, and depletion for natural resources.

Question 14

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

Accepted Answer

Tax depreciation recovery periods are determined by the IRS and are outlined in the tax code, not based on historical data.

Question 15

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 the §179 immediate expensing election is excluded from the calculation for the mid-quarter convention, which requires that if more than 40 percent of the total cost of property is placed in service in the last quarter of the year, the mid-quarter convention must be used. 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.

Question 16

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 capitalized and added to the asset's cost basis. These expenses are then depreciated over the useful life of the asset. An asset's capitalized cost basis includes not only the actual purchase price, but also expenses to purchase, prepare the asset for use, and begin using the asset. These expenses are not immediately expensed, but are added to the asset's cost basis and depreciated over its useful life.

Question 17

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 based on the taxpayer's taxable income.

Question 18

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

Question 19

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 correct it by filing an amended return and claiming the correct amount of depreciation. The asset's basis must be reduced by the amount of allowable depreciation, not just the amount actually taken. If a business mistakenly claims too little depreciation, the corrected amount of depreciation must be taken for the remaining life of the asset, and the basis of the asset must be adjusted accordingly.

Question 20

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...

Quiz 10: Property Acquisition and Cost Recovery