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Which Of The Allowable Methods Allows The Most Accelerated Depreciation

Dwayne Morise

Question: Chapter 10A - Property Acquisition & Cost Recovery (Personal Property)

True / False Questions

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

  2. Answer: TRUE

  3. Question: 2. Tax cost recovery methods include depreciation, amortization, and depletion.

  4. Answer: TRUE

  5. 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.

  6. Answer: FALSE - Allowed or allowable concept.

  7. Question: 4. An asset’s capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are immediately expensed.

  8. Answer: FALSE - capitalized cost also includes sales tax, shipping and installation costs.

  9. Question: 5. Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

  10. Answer: TRUE

  11. Question: 6. Taxpayers use the half-year convention for all assets.

  12. Answer: FALSE - for personal property, taxpayers must use either the half-year or mid-quarter convention.

  13. Question: 7. The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

  14. Answer: TRUE

  15. Question: 8. 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.

  16. Answer: FALSE - the half-year convention still applies in the year of disposition.

  17. Question: 9. 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.

  18. Answer: TRUE - only 50% of the full year depreciation amount is allowed in the year of disposition.

  19. Question: 10. All taxpayers may use the §179 immediate expensing election on certain property.

  20. Answer: FALSE - subject to a phase-out limitation.