Question 1

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

Accepted Answer

This is because longer-lived property typically has a higher cost, which means that expensing it under §179 can lead to greater tax savings. Additionally, longer-lived property often provides a longer period of utility, which can make it a better investment for a business.

Question 2

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. When a personal use asset is converted to business use, the cost basis or fair market value (whichever is lesser) becomes the basis for depreciation and other tax purposes.

Question 3

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 depreciation percentage from the MACRS table percentage by 50 percent to calculate the depreciation expense properly.

Accepted Answer

This statement is true. When using the half-year convention for MACRS depreciation, assets are assumed to be placed in service halfway through the year, regardless of the actual date they were put into use. Therefore, if a machine is disposed of in the seventh year, it will have been depreciated for 6.5 years. To calculate the depreciation expense properly for the partial year of depreciation in the seventh year, the appropriate depreciation percentage from the MACRS table must be multiplied by 50 percent.

Question 4

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

Accepted Answer

MACRS is a commonly used depreciation method in the United States, especially for tax purposes.

Question 5

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 40 percent test for mid-quarter convention application.

Question 6

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 7

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 allowable depreciation method for five and seven-year property.

Question 8

Real property is always depreciated using the straight-line method.

Accepted Answer

The answer of Real property is always depreciated using the...

Question 9

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 10

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

Accepted Answer

Tax cost recovery methods include depreciation (for tangible property), amortization (for intangible property), and depletion (for natural resources).

Question 11

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

Accepted Answer

If a business mistakenly claims too little depreciation, the business must correct the error by reducing the basis of the asset by the amount of the allowable depreciation that was not claimed.

Question 12

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 13

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. The capitalized cost basis of an asset includes all costs incurred to bring the asset into its present condition and location for its intended use, including expenses to purchase, prepare, and begin using the asset. These costs are not immediately expensed, but instead are depreciated over the useful life of the asset.

Question 14

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 is subject to a phase-out limitation based on the amount of tangible personal property the taxpayer places in service during the tax year.

Question 15

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

Accepted Answer

The mid-month convention is used for real property only in the year of acquisition and disposition. It requires that a property is considered to have been placed in service or disposed of in the middle of the month, regardless of the actual date of acquisition or disposition. This affects the calculation of depreciation for that year.

Question 16

Like financial accounting,most acquired business property must be capitalized for tax purposes.

Accepted Answer

Most acquired business property must be capitalized for tax purposes under the IRS rules, which means the cost of the property is not deducted as an expense in the year of purchase but is instead depreciated over several years.

Question 17

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 18

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 19

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 half-year convention can still be used for the year of disposition; switching to the mid-quarter convention is not required simply because the property was disposed of in the first quarter of a subsequent year. The mid-quarter convention is generally applied in the year of acquisition if more than 40% of the depreciable property is placed in service in the last quarter of the tax year.

Question 20

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.

Quiz 9: Property Acquisition and Cost Recovery