Term
| What is the difference between personalty and personal use property? |
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Definition
| Personalty refers to anything that isn't realty. Personal use property can be personalty or realty, and refers to the non-income-producing nature of the asset. |
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Term
| What date is used for the measurement of cost allocation? |
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Definition
| The date the property is placed into service. |
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Term
| What is the cost allowable? |
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Definition
| The cost recovery permitted by the applicable method. |
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Term
| What is the cost allowed? |
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Definition
| The cost recovery actually taken, depends on taxable income. |
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Term
| On March 15, Jack purchased 5-year property for $10,000. Jack elected to use the straight-line method. He took the allowable cost recovery in every year except 3 and 4, when he took 0. What is his adjusted basis in year 7? What is his gain if he sells it for $800? |
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Definition
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Term
| If personal use assets are converted to non-personal, what is the basis? |
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Definition
| The lower of the adjusted basis or fair market value at the date of conversion. (Why? Can't recognize losses on personal property, but can recognize gains) |
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Term
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Definition
| Alternative depreciation system |
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Term
| What are the two election options regarding MACRS personalty? |
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Definition
| Declining balance switching to straight line, or straight line |
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Term
| Under MACRS, what acceleration rate is used for 3-10 year classes of personalty? |
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Definition
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Term
| Under MACRS, what acceleration rate is used for 15 and 20-year classes of personalty? |
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Definition
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Term
| What is the procedure for using the tables to calculate depreciation? |
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Definition
1. Determine if the straight-line method has been elected.
2. Identify the asset's class
3. Look up the appropriate percentage in the table.
4. Multiply by the capitalized cost of the item. |
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Term
| MACRS views property as placed in service as of the... |
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Definition
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Term
| MACRS allows for _______ of cost recovery in the year of disposition or retirement. |
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Definition
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Term
| Kareem acquires a 5-year personalty asset on April 10 for $30,000. What is his cost recovery in the first year? |
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Definition
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Term
| For what years does additional first year depreciation of 50% apply? 100%? |
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Definition
50%: 2008, 2009, 2010, 2012
100%: 2011*
*See book for specific cut-off dates |
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Term
| For what items does the additional first-year depreciation apply? |
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Definition
| New property that is not a building |
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Term
| Morgan acquires and places in service a 5-year personalty asset on March 20, 2012, for $50,000. What is her cost recovery deduction for 2012? |
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Definition
| 50% additional first-year depreciation + MACRS cost recovery = $50,000 x 1/2 + ($50,000 - $50,000 x 1/2) x 0.2 = $30,000 |
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Term
| Morgan acquires and places in service a 5-year class asset for $50,000 and takes the additional first-year depreciation. She sells the asset in 2013. What is her cost recovery deduction for 2013? |
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Definition
| ($50,000 - $25,000) x 0.32 = $4,000 |
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Term
| How does the additional first-year depreciation affect subsequent years of cost recovery? |
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Definition
| The percentage found on the table is multiplied by the cost LESS the additional depreciation taken. |
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Term
| When is the mid-quarter convention used? |
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Definition
| When >40% of assets were placed in service after October 1. |
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Term
| When the straight-line depreciation election is used on personalty, what grouping options are available? |
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Definition
| Class-by-class and year-by-year |
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Term
| When the mid-point convention applies, when is the property presumed to have been disposed of? |
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Definition
| The midpoint of the quarter (half a quarter's worth of depreciation may be taken for the final month) |
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Term
| How is rental real estate (both residential and nonresidential) depreciated? |
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Definition
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Term
| What convention is used for real estate? |
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Definition
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Term
| Alec acquired a residential building on April 1, 1996 for $800,000. What is the 2012 depreciation? |
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Definition
| (17 years) 0.03636 x $800,000 = $29,088 |
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Term
| Jane acquired a non-residential building on March 2, 1993, for $1million. What is the cost recovery deduction for 2012? |
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Definition
| $1,000,000 x 0.03174 = $31,740 |
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Term
| Alec acquired a residential building on April 1, 1996, for $800,000. If the building is sold on October 7, 2012, what is the cost recovery deduction for 2012? |
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Definition
| $800,000 x 0.03636 x 9.5/12 = $23,028 |
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Term
| Jane acquired a non-residential building on March 2, 1993, for $1million. if the building is sold on January 5, 2012, what is the cost recovery deduction? |
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Definition
| 0.03174 x 0.5/12 x $1,000,000 = $1,323 |
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Term
| Terry acquires a 10-year personalty asset on August 4, 2012, for $100,000. He elects the straight-line method. What is his cost recovery for 2012? |
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Definition
| $100,000 x 0.050 = $5,000 |
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Term
| Terry acquires a 10-year personalty asset on August 4, 2012, for $100,000. He elects the straight-line method. What is his cost recovery for 2013? |
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Definition
| $100,000 x 0.100 = $10,000 |
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Term
| Terry acquires a 10-year personalty asset on August 4 for $100,000. He elects the straight-line method and sells the asset on November 21, 2013. What is his cost recovery for 2013? |
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Definition
| $100,000 x 0.100 x 1/2 = $5,000 |
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Term
| When the business is a farm, what election may be made? |
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Definition
| Use ADS straight-line instead of the uniform capitalization rules. |
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Term
| True or false: when a farm elects to use straight-line ADR, it may not expense any assets under s179. |
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Definition
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Term
| James purchased new farm equipment on July 10, 2012, for $80,000. If James does not elect to expense any of the cost under s179, what is his cost recovery for 2012? |
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Definition
| $80,000 x 0.1071 = $8,568 |
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Term
| James purchased new farm equipment on July 10, 2012, for $80,000. If James does not elect to expense any of the cost under s179, and makes the relevant election, what is his cost recovery for 2012? |
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Definition
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Term
| When the lessor owns the leasehold improvement property, what is its cost recovery period? |
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Definition
| The statutorily prescribed life (27.5 for residential rental real estate, 39 for nonresidential) |
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Term
| On April 7, 2012, John became the lessor of a non-residential building, with the lease beginning on May 1, 2012. John paid $300,000 on leasehold improvements. What is his cost recovery for 2012? |
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Definition
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Term
| On April 7, 2012, John became the lessor of a non-residential building, with the lease beginning on May 1, 2012. John paid $300,000 on leasehold improvements. What is his cost recovery for the final year of the lease, 2022? |
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Definition
| $300,000 x 0.02564 x 3.5/12 = $2,244 |
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Term
| On April 7, 2012, John became the lessor of a non-residential building, with the lease beginning on May 1, 2012. John paid $300,000 on leasehold improvements. Conceptually, what is his loss? |
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Definition
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Term
| What happens when there is unrecovered basis of a leasehold improvement left over at the end of a lease? |
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Definition
| It is deducted in the year the lease ends. |
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Term
| True or false: Leasehold improvements qualify for additional first-year depreciation. |
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Definition
| Only if it is the interior portion of non-residential real estate, and is placed in service more than three years after the building itself. |
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Term
| What is the maximum write-off available under s179? |
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Definition
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Term
| What qualifies for s179 treatment? |
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Definition
| Tangible personal property used in a trade or business |
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Term
| Kelly acquires 5-year personalty on February 1, 2012, for $200,000, and elects to expense the maximum under s179. What is her total deduction for the year? |
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Definition
| s179 + additional first-year depreciation + standard MACRS = $139,000 + ($200,000 - $139,000) x 50% + ($200,000 - $139,000 - $30,500) x 0.2 = $175,600 |
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Term
| What are the two limits on s179? |
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Definition
| Dollar-for-dollar phaseout above $560,000. Expense cannot exceed taxable income (when calculated without s179, carryforwards available) |
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Term
| Jill's business made $80,000 in taxable income. If she spends $600,000 on 5-year equipment, what is her s179 expense deduction? |
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Definition
| Lesser of $139,000 - dollar limit reduction OR business income = {$139,000 - ($600,000 - $560,000), $80,000} = $80,000 |
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Term
| Jill's business made $80,000 in taxable income. If she spends $600,000 on 5-year equipment and elects not to take additional first-year depreciation, what is her cost recovery deduction? |
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Definition
($600,000 - ($139,000 - $40,000*)) x 0.2 = $100,200
*Reduction due to phaseout |
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Term
| How may listed property be depreciated? |
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Definition
Predominantly business: either statutory percentage or straight-line
Predominantly personal or income: straight-line |
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Term
| Emma has 5-year listed property costing $10,000. If she uses the property 40% for business and 25% for income production, is the property considered business property? What is her cost recovery? |
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Definition
| No. $10,000 x 10% x 65% = $650 |
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Term
| Emma has 5-year listed property costing $10,000. If she uses the property 60% for business and 25% for income production, is the property considered business property? What is her cost recovery? |
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Definition
| Yes. $10,000 x 0.2 x 85% = $1,700 |
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Term
| What items have cost recovery limitations? |
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Definition
| Passenger automobiles predominantly used in business |
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Term
| How are non-business passenger automobiles depreciated? |
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Definition
| 5-year straight-line, no additional first-year depreciation |
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Term
| On July 27, 2012, Fred placed in service a $20,000 automobile, used 40% for business and 60% for personal use. What is his cost recovery allowance for 2012? |
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Definition
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Term
| On July 27, 2012, Fred placed in service a $50,000 automobile, used 40% for business and 60% for personal use. What is his cost recovery allowance for 2012? |
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Definition
| Lesser of {$50,000 x 10%, $5,000} x 40% = $1,224 |
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Term
| What is excess cost recovery? |
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Definition
| Excess of cost recovery taken in prior years using statutory method over the straight-line method |
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Term
| Seth purchased a new car on January 22, 2012 for $20,000. Business usage was 80% in 2012, 70% in 2013, 40% in 2014, 60% in 2015. Seth elects not to take additional first-year depreciation. What is his excess cost recovery for 2012 ONLY? |
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Definition
| MACRS - Straight-line = Lesser of {$20,000 x 0.2 x 80%, $3,060 x 80%} - Lesser of {$20,000 x 0.1 x 80%, $3,060 x 80%} = $2,448 - $1,600 = $848 |
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Term
| If business usage drops below 50%, then bumps back up, how is this accounted for? |
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Definition
| Remains on straight-line method. |
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Term
| On April 1, 2012, Jim leases for 5 years a $40,000 automobile, used 70% for business. If the IRS tables indicate $50 and $109, what must Jim add to his gross income? |
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Definition
$24 x 275/366* x 70% = $13
$53 x 365/365 x 70% = 37
*2012 is divisible by 4, and so is a leap year |
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Term
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Definition
| Straight-line with no salvage, using appropriate convention |
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Term
| MACRS applies to what kind of assets? |
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Definition
1. Used in a trade or business for income production
2. Subject to wear, tear, obsolescence
3. Determinable useful life or decline in value on a predictable basis
4. Tangible personalty or realty |
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