28 terms

ACC 321 Exam 2 CH 8

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What is the applicable system of depreciation or cost recovery dependent on?
The date the property is placed in service
If the property was placed in service before January 1, 1981, what rules would apply?
Section 167
If the property was placed in service after December 30, 1980 and before January 1, 1987 what rules would apply?
ACRS (Accelerated Cost Recovery System)
If the property was placed in service after December 31, 1886, what rules would apply?
MACRS (Modified Accelerated Cost Recovery System)
What does realty include?
Includes real estate and any capital improvements that are regarded as fixtures
What does personalty include?
Any asset that is not realty
What type of property can realty and personalty be?
1. Personal Use Property
2. Business or income producing property
What general attributes must property contain to be depreciable property?
1. Be business or income producing property
2. Have a limited life
3. Must decline in value on a predictable basis
What is the allowed cost recovery?
The amount actually deducted
What is the allowable cost recover?
The amount that could have been taken under the applicable cost recovery method
What happens if personal use property is converted into business or income producing property?
The property's basis for depreciation purposes is the lessor of its adjusted basis or its fair market value at the conversion date
What is the recovery period and method for personalty property?
MACRS
How is depreciation calculated for personalty property?
1. With classifications of 3, 5, 7 and 10 year property, they use the 200% DDB method, with a switchover to straight-line when it yields a larger amount
2. The assumed salvage value is 0
What are the depreciation methods for personalty property of 15 and 20 years?
1. 150% DDB, with a switchover to straight-line when it yields a larger amount
2. The assumed salvage value is 0
What convention does MACRS use?
1. The half year, with one exception
2. The half year cost of recovery is in the first year and the last year of the recovery period
What is the exception when using MACRS?
If more than 40% of the value of the property (other than real estate) is placed in service during the last quarter of the year, then the mid-quarter conventionapplies
For property to qualify for additional first year deduction it has to?
It must be purchased "new" not used, and the purchased property cannot be buildings (i.e. realty) and still qualify
What is the additional percentage for property placed in service after 9/8/10 and before 1/1/12?
100%
For qualified property placed in service after 12/31/11 and before 9/27/17 what is the additional first year percentage?
50%
What are the recovery periods and methods for realty property?
MACRS
How is residential rental real estate depreciated?
Straight-line over 27.5 years
What is residential real estate?
Property for which 80% or more of the gross rental revenues are from non-transient dwelling units
How is non-residential real estate depreciated?
Straight-line over 31.5 years (39 years for such property placed in service after May 12, 1993)
What convention is real estate property depreciated with?
All real estate is depreciated using a mid-month convention. This is also applied in the year of disposition
What is the straight-line election?
Under MACRS, a taxpayer may elect to use straight-line method rather than the statutory accelerated method for personalty
What is the Sec 179 Expense Election?
An expense where a taxpayer may elect to expense up to $510,000 in 2017 of the acquisition cost of tangible personal property used in a trade or business
Sec 179 Expense Limitation: Dollar Limitation
The amount of Sec 179 deduction is reduced by $1 for $1 for property in excess of $2,030,000 placed in service during that year
Sec 179 Expense Limitation: Business Income Limitation
The Sec 179 deduction cannot exceed taxable income derived from the conduct of any trade or business activities.