Chapter 08 1. Three types of cost recovery and the key descriptor 2. Nature of p

Question

Chapter 08

1. Three types of cost recovery and the key descriptor

2. Nature of property (two types)

3. Should personal property be depreciated?

4. Explain Allowed or Allowable

5. What is the basis when converting from personal to business

6. Explain the concept of class life as related to depreciation

7. What is the difference between SL and MACRS

8. When does residential real estate become non-residential real estate?

9. What is the Section 179 limit for 2017?

10. What are the three classifications of vehicle depreciation?

11. When do you use ADS?

12. What is the method and time for Amortization

13. List the two methods for Depletion

Explanation / Answer

(1) Depreciation is allowed for most tangible assets that are used in a trade or business or held for the production of income and that have a useful life greater than 1 year, including realty, which is country or buildings or other permanent structures on the land, and personality, which includes all other tangible assets. Other methods of claiming a deduction for assets that have an extended life include amortization and depletion.

Amortization is necessary for claiming deductions on intangible assets used for business or for the production of income, including goodwill, covenants not to compete, licenses, copyrights, patents, and trademarks. Most of these assets, if acquired after August 10, 1993, are amortized over a 15 year period. Depletion is the allowed deduction for the extraction of certain natural resources.

Depletion is used to deduct the cost of natural resources as they are used up. Depletion is a process by which the cost of the adjusted basis of a natural resource is recovered when the resources are extracted and sold. There are 2 methods to determine depletion allowance: cost and percentage methods.

(2) Nature of property is freehold and leasehold

(3) No, personal property is not depreciated

(4) Expense allowed is Expense actually deducted when filing your taxes (from which you received a tax benefit). Expense allowable is Expense you’re entitled to deduct but didn’t necessarily deduct for tax purposes.

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