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

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

False

Question 3

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 recalculate the depreciation and take the difference as an adjustment in the current and future years. The basis of the asset is not reduced.

Question 4

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

Accepted Answer

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

Question 5

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 6

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 7

The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

Accepted Answer

This is true. MACRS (Modified Accelerated Cost Recovery System) depreciation tables automatically switch to the straight-line method when it yields a higher deduction than the declining balance method. This typically occurs near the end of the asset's useful life, when the declining balance method no longer yields a larger deduction than the straight-line method.

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 is correct according to IRS guidelines. 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.

Question 9

An asset's capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are immediately expensed.

Accepted Answer

The statement is false. An asset's capitalized cost basis includes not only the actual purchase price, but also other expenses associated with the acquisition or construction of the asset, such as legal fees, appraisal fees, and installation costs. These expenses are added to the purchase price and then depreciated over the useful life of the asset.

Question 10

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 11

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

Accepted Answer

This is because the immediate expensing election allows a taxpayer to deduct the cost of certain qualifying property in the year it is placed in service, rather than depreciating it over a number of years. By selecting longer-lived property, the taxpayer can take advantage of the larger §179 deduction in the year of acquisition, rather than spreading it out over several years through depreciation.

Question 12

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

This statement is true. 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 13

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

Accepted Answer

The mid-month convention is applied for real property in the year of acquisition and disposition.

Question 14

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 15

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

Accepted Answer

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

Question 16

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.

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

Accepted Answer

This is because the half-year convention assumes that property placed in service during any year is treated as if it were placed in service in the middle of that year, resulting in only half of a year's depreciation being allowed in the first and last years of the recovery period. Therefore, if the machine is disposed of during the seventh year, only half of the annual depreciation percentage from the MACRS table should be used to calculate the depreciation expense for that year.

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 allowable for 5 and 7 year property, as per the Modified Accelerated Cost Recovery System (MACRS) for federal income tax purposes.

Question 19

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

Accepted Answer

Business property, such as equipment and buildings, is considered a long-term asset and must be capitalized for tax purposes. This means that the cost of the asset is spread over its useful life and deducted gradually over time, rather than in one lump sum.

Question 20

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

Accepted Answer

MACRS is currently the method used for computing depreciation in the United States.

Quiz 9: Property Acquisition and Cost Recovery