Question 1

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Accepted Answer

The answer of The alternative depreciation system requires both a...

Question 2

Which of the following business assets is not depreciated?

Accepted Answer

Patents are not depreciated because they have a finite useful life and expire after a certain period of time, usually 20 years. Therefore, they are amortized (expensed) over their useful life, rather than depreciated like assets that have a physical lifespan.

Question 3

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Accepted Answer

Depletion is a legitimate tax deduction that taxpayers can use to recover their capital investment in natural resources such as oil, gas, timber, or minerals. It is a way to account for the reduction of a natural resource's value as it is extracted and sold. Depletion is a legitimate tax deduction that allows taxpayers to recover their capital investment in natural resources over time. It is available to taxpayers who have an economic interest in mineral deposits, oil and gas reserves, timberlands, and other natural resources. Depletion allows these taxpayers to deduct a portion of their investment each year based on the amount of resources or units produced and sold, until the entire investment has been recovered or until the resource is depleted.

Question 4

Goodwill and customer lists are examples of §197 amortizable assets.

Accepted Answer

Goodwill and customer lists are specifically listed as §197 intangible assets that can be amortized over 15 years for tax purposes. Goodwill and customer lists are both intangible assets that can be amortized over a period of time, typically 15 years, under the tax laws of the US.

Question 5

All assets subject to amortization have the same recovery period.

Accepted Answer

Assets subject to amortization can have different recovery periods depending on their useful life as determined by the IRS. For example, the recovery period for a computer may be different than the recovery period for a building. Different assets can have different recovery periods based on their nature and expected useful lives.

Question 6

The method for tax amortization is always the straight-line method.

Accepted Answer

The answer of The method for tax amortization is always...

Question 7

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Accepted Answer

This statement is true. Businesses do have the option to immediately expense research and experimentation expenditures, but if they elect to capitalize these costs, they must amortize them over a period of not less than 60 months using the straight-line method. This statement is true. Businesses do have the option to immediately expense research and experimentation costs or to capitalize them and amortize them over a period of not less than 60 months using the straight-line method. However, the decision to expense or capitalize may depend on various factors and should be carefully considered by the business.

Question 8

An example of an asset that is both personal-use and personal property is:

Accepted Answer

A computer used solely to monitor the CEO's investments and to complete her Form 1040 is considered both personal-use (as it is used for personal financial management and tax preparation) and personal property (as it is a tangible asset owned by an individual).

Question 9

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

Accepted Answer

Listed property is a term used for business assets that are frequently used for both business and personal purposes. Examples include vehicles, computers, and cell phones. These assets can be subject to certain limitations and restrictions on deductions due to their dual-use. Listed property is defined by the IRS as any property that is used for both business and personal purposes, such as a car or a cell phone.

Question 10

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of allocating the total cost of a natural resource over the units of resource extracted during the period. It is available to all natural resource producers. Cost depletion is a method of accounting for natural resource producers that allows them to deduct the cost of extracting and producing the natural resource from their taxable income. This is available to all natural resource producers, including those in the mining, oil and gas, and timber industries.

Question 11

An office desk is an example of:

Accepted Answer

An office desk is considered personal property because it is movable and not permanently attached to the land or buildings. When used in a business context, it also qualifies as business property, reflecting its role in commercial activities.

Question 12

Used property is eligible for bonus depreciation.

Accepted Answer

Under the Tax Cuts and Jobs Act (TCJA), used property is now eligible for bonus depreciation. The Tax Cuts and Jobs Act of 2017 extended bonus depreciation to used property, making it eligible for a 100% deduction in the year it is placed in service.

Question 13

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Accepted Answer

Taxpayers cannot always expense all start-up costs and organizational expenditures. These expenses must be capitalized and amortized over several years, with certain limitations and qualifications. Taxpayers can only deduct up to $5,000 of start-up costs and $5,000 of organizational expenses in their first year of business. Any excess amount must be amortized over a period of 15 years.

Question 14

If the business-use percentage for listed property falls below 50 percent, the only adjustment isthat all future depreciation must be calculated under the straight-line method.

Accepted Answer

If the business-use percentage for listed property falls below 50 percent, not only must all future depreciation be calculated under the straight-line method, but the taxpayer may also need to recapture any excess depreciation taken in previous years over the amount that would have been allowed using the straight-line method.

Question 15

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the annual depreciation deductions for luxury automobiles used for business purposes, which includes passenger vehicles with a purchase price over a certain amount, as determined by the year in which the vehicle was purchased. The IRS places limits on the amount of depreciation that can be taken on luxury automobiles, which are defined as cars with a purchase price above a certain threshold. These limits are meant to prevent tax avoidance schemes and to limit deductions for cars that are primarily used for personal enjoyment rather than business purposes.

Question 16

Which of the following would be considered an improvement rather than routine maintenance?

Accepted Answer

An engine overhaul is considered an improvement as it involves major work on the engine, such as replacing worn out parts, pistons or cylinders. The other options listed are routine maintenance tasks that are performed regularly to keep the vehicle in good working condition. Routine maintenance tasks are those that are required to keep a car functioning properly on a day-to-day basis, such as oil changes, wiper blade replacements, and air filter changes. An engine overhaul, on the other hand, involves significant repairs or replacement of major components, and can be seen as an improvement to the car's performance rather than just typical maintenance.

Question 17

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Accepted Answer

When a business purchases a patent or copyright, the cost is capitalized and amortized over its useful life. However, if the business self-creates the intangible, only the costs that can be directly attributed to the creation process (like legal fees for patent registration) are capitalized and amortized; many initial research and development costs are expensed as incurred.

Question 18

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Accepted Answer

Major integrated oil and gas producers are generally not allowed to take percentage depletion for tax purposes; they must use cost depletion. Percentage depletion is available only to independent producers and royalty owners under U.S. tax law.

Question 19

Which of the following is not usually included in an asset's tax basis?

Accepted Answer

All of the choices listed (purchase price, sales tax, shipping, and installation costs) are typically included in an asset's tax basis. The tax basis of an asset is essentially its cost for tax purposes, which includes the purchase price and all expenses incurred to acquire and prepare the asset for use.

Question 20

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Accepted Answer

The answer of To increase their depreciation deduction on automobiles,...

Quiz 2: Property Acquisition and Cost Recovery