Question 1

The mid-quarter convention under MACRS provides that

Accepted Answer

A) Depreciation is allowable in the year of acquisition of qualified property only if the property is placed in service in the first one-fourth of that year. 
B) One half of the year-of-acquisition depreciation is allowed regardless of when the property is placed in service during the year. One-half year's depreciation is allowable for the year of disposition. 
C) The cost recovery deduction is based on the number of months the property was in service in the year of acquisition. Therefore, one-half month's cost recovery is allowable for the month in which the property is place in service and for the month of disposition. 
D) Any property placed in service in the last 3 months of a tax year is depreciated using this convention. 
E) Depreciation is calculated from the middle of the quarter in which an asset is placed in service through the end of the year. 
A) Depreciation is allowable in the year of acquisition of qualified property only if the property is placed in service in the first one-fourth of that year. 
B) One half of the year-of-acquisition depreciation is allowed regardless of when the property is placed in service during the year. One-half year's depreciation is allowable for the year of disposition. 
C) The cost recovery deduction is based on the number of months the property was in service in the year of acquisition. Therefore, one-half month's cost recovery is allowable for the month in which the property is place in service and for the month of disposition. 
D) Any property placed in service in the last 3 months of a tax year is depreciated using this convention. 
E) Depreciation is calculated from the middle of the quarter in which an asset is placed in service through the end of the year.

Question 2

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

Accepted Answer

A) True 
 B)False

Question 3

In most cases, the taxpayer may continue to use percentage (statutory) depletion after the initial basis has been fully recovered. In other words, the taxpayer's depletion deduction can exceed the cost of the depletable asset.

Accepted Answer

A) True 
 B)False

Question 4

What is the MACRS recovery period for a warehouse placed in service on August 31, 2018?

Accepted Answer

A) 10 years. 
B) 27.5 years. 
C) 31.5 years. 
D) 39 years. 
E) 40 years. 
A) 10 years. 
B) 27.5 years. 
C) 31.5 years. 
D) 39 years. 
E) 40 years.

Question 5

Which of the following intangible assets is not subject to the 15-year amortization period?

Accepted Answer

A) Purchased goodwill. 
B) A professional football franchise purchased and relocated to Indianapolis. 
C) A covenant not to compete. 
D) A purchased customer list for mail order clothing. 
E) A trademark. 
A) Purchased goodwill. 
B) A professional football franchise purchased and relocated to Indianapolis. 
C) A covenant not to compete. 
D) A purchased customer list for mail order clothing. 
E) A trademark.

Question 6

While Congress has enacted several different depreciation methods, all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Accepted Answer

A) True 
 B)False

Question 7

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)?
I.The taxpayer desires rapid write off of assets.
II.The taxpayer may be close to being subject to the alternative minimum tax.
III.The taxpayer is experiencing a low income time period.
​

Accepted Answer

A) Statements I and III are correct. 
B) Only statement I is correct. 
C) Statements II and III are correct. 
D) Statements I and II are correct. 
E) Statements I, II, and III are correct. 
A) Statements I and III are correct. 
B) Only statement I is correct. 
C) Statements II and III are correct. 
D) Statements I and II are correct. 
E) Statements I, II, and III are correct.

Question 8

The earlier the depreciation deduction can be taken, the greater the present value of the tax savings will be to the taxpayer.

Accepted Answer

A) True 
 B)False

Question 9

The mid-quarter convention
I.never applies to real estate.
II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 10

MACRS requires the use of one of three conventions. For personal property, the general and most common convention is

Accepted Answer

A) mid-life 
B) mid-quarter. 
C) mid-month. 
D) mid-year. 
A) mid-life 
B) mid-quarter. 
C) mid-month. 
D) mid-year.

Question 11

Sally purchased new equipment for her consulting business. She allocates the Section 179 deduction among the new assets. One piece of equipment cost $1,000,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $500,000.

Accepted Answer

A) True 
 B)False

Question 12

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

Accepted Answer

A) $-0- 
B) $42,865 
C) $100,000 
D) $210,000 
E) $115,719 
A) $-0- 
B) $42,865 
C) $100,000 
D) $210,000 
E) $115,719

Question 13

Which of the following assets would be allowed a depreciation deduction?
I.A truck used to provide transportation to a job site.
II.A car used for personal purposes.
III.An apartment building rented out for the production of rental income.
IV.A personal-use computer of the taxpayer.
​

Accepted Answer

A) Only statement II is correct. 
B) Statements II and IV are correct. 
C) Only statement I is correct. 
D) Statements I and III are correct. 
E) All of the assets are depreciable. 
A) Only statement II is correct. 
B) Statements II and IV are correct. 
C) Only statement I is correct. 
D) Statements I and III are correct. 
E) All of the assets are depreciable.

Question 14

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

Accepted Answer

A) $- 0 - 
B) $10,000 
C) $11,000 
D) $23,000 
E) $215,000 
A) $- 0 - 
B) $10,000 
C) $11,000 
D) $23,000 
E) $215,000

Question 15

Rafael bought an apartment building on March 27, 2011, at a cost of $2,000,000 (exclusive of the cost allocated to the land). He sells the building on November 3, 2018. What is Rafael's cost recovery deduction on the building for 2018 if he wants to take the maximum deduction allowable on the building?

Accepted Answer

A) $44,870 
B) $63,630 
C) $66,660 
D) $69,690 
E) $72,740 
A) $44,870 
B) $63,630 
C) $66,660 
D) $69,690 
E) $72,740

Question 16

The mid-year convention is used for personal property only.

Accepted Answer

A) True 
 B)False

Question 17

Residential rental real estate placed in service on July 17, 2018, is depreciated over

Accepted Answer

A) 39 years, straight-line method, mid-month convention. 
B) 40 years, straight-line method, mid-month convention. 
C) 27.5 years, 150%-declining-balance method, mid-year convention. 
D) 27.5 years, straight-line method, mid-month convention. 
E) 39 years, 150%-declining-balance method, mid-year convention. 
A) 39 years, straight-line method, mid-month convention. 
B) 40 years, straight-line method, mid-month convention. 
C) 27.5 years, 150%-declining-balance method, mid-year convention. 
D) 27.5 years, straight-line method, mid-month convention. 
E) 39 years, 150%-declining-balance method, mid-year convention.

Question 18

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

Accepted Answer

A) $10,000 
B) $- 0 - 
C) $25,000 
D) $975,000 
E) $500,000 
A) $10,000 
B) $- 0 - 
C) $25,000 
D) $975,000 
E) $500,000

Question 19

What is the MACRS recovery period for a video game used in an arcade?

Accepted Answer

A) 3 years. 
B) 5 years. 
C) 6 years. 
D) 7 years. 
E) 10 years. 
A) 3 years. 
B) 5 years. 
C) 6 years. 
D) 7 years. 
E) 10 years.

Question 20

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased) that are used in his business. He may allocate his section 179 deduction to either or both assets.

Accepted Answer

A) True 
 B)False

The mid-quarter convention under MACRS provides that

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

In most cases, the taxpayer may continue to use percentage (statutory) depletion after the initial basis has been fully recovered. In other words, the taxpayer's depletion deduction can exceed the cost of the depletable asset.

What is the MACRS recovery period for a warehouse placed in service on August 31, 2018?

Which of the following intangible assets is not subject to the 15-year amortization period?

While Congress has enacted several different depreciation methods, all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period.

The earlier the depreciation deduction can be taken, the greater the present value of the tax savings will be to the taxpayer.

The mid-quarter convention I.never applies to real estate. II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year.

MACRS requires the use of one of three conventions. For personal property, the general and most common convention is

Sally purchased new equipment for her consulting business. She allocates the Section 179 deduction among the new assets. One piece of equipment cost $1,000,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $500,000.

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer.

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

The mid-year convention is used for personal property only.

Residential rental real estate placed in service on July 17, 2018, is depreciated over

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

What is the MACRS recovery period for a video game used in an arcade?

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased) that are used in his business. He may allocate his section 179 deduction to either or both assets.

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses-Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 10: Cost Recovery on Property: Depreciation, Depletion, and Amortization

The mid-quarter convention under MACRS provides that

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

In most cases, the taxpayer may continue to use percentage (statutory) depletion after the initial basis has been fully recovered. In other words, the taxpayer's depletion deduction can exceed the cost of the depletable asset.

What is the MACRS recovery period for a warehouse placed in service on August 31, 2018?

Which of the following intangible assets is not subject to the 15-year amortization period?

While Congress has enacted several different depreciation methods, all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period. ​

The earlier the depreciation deduction can be taken, the greater the present value of the tax savings will be to the taxpayer.

The mid-quarter convention I.never applies to real estate. II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year. ​

MACRS requires the use of one of three conventions. For personal property, the general and most common convention is

Sally purchased new equipment for her consulting business. She allocates the Section 179 deduction among the new assets. One piece of equipment cost $1,000,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $500,000.

In 2018, Henry purchases $210,000 of equipment with a useful life of 7 years. The taxable income of the business before any Section 179 deduction is $100,000. Henry elects not to take bonus depreciation. What is Henry's maximum depreciation deduction in 2018?

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer. ​

During 2018, Linda has a $12,000 net loss from her beauty salon. Her spouse, Bart, earns $23,000 as a tennis professional. During 2018, Bart purchases $215,000 of Section 179 equipment for his business. What is the amount of Linda and Bart's Section 179 deduction for 2018?

The mid-year convention is used for personal property only.

Residential rental real estate placed in service on July 17, 2018, is depreciated over

In 2018, Steve purchases $975,000 of equipment. The taxable income of the business before any Section 179 deduction is $10,000. What is Steve's maximum Section 179 deduction in 2018?

What is the MACRS recovery period for a video game used in an arcade?

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased) that are used in his business. He may allocate his section 179 deduction to either or both assets.

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses-Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)? I.The taxpayer desires rapid write off of assets. II.The taxpayer may be close to being subject to the alternative minimum tax. III.The taxpayer is experiencing a low income time period.

The mid-quarter convention I.never applies to real estate. II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year.

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer.