Depreciation Demystified

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Questions and Answers

What is the purpose of determining the fair market value of property received for services?

  • To calculate the amount of taxes owed
  • To determine the basis in the property (correct)
  • To determine the depreciation method to use
  • To decide whether to keep or sell the property

What is depreciation?

  • The cost of property over time (correct)
  • The amount of money paid for property
  • The fair market value of property
  • The amount of taxes owed on property

What is the difference between straight-line depreciation and accelerated depreciation?

  • The type of property that can be depreciated
  • The length of time over which the property is depreciated
  • The amount of depreciation deducted each year (correct)
  • The tax rate applied to the depreciation

What is the useful life of property?

<p>The length of time over which the property is depreciated (D)</p> Signup and view all the answers

What type of property can be depreciated?

<p>All types of property (B)</p> Signup and view all the answers

What is the basis in property?

<p>The amount of money paid for the property (C)</p> Signup and view all the answers

Can you deduct the full cost of property in the year it was purchased?

<p>No (C)</p> Signup and view all the answers

What is the difference between the straight-line method and the declining balance method of depreciation?

<p>The amount of depreciation deducted each year (A)</p> Signup and view all the answers

What happens if you do not keep track of the basis in property received for services?

<p>You may have to pay more in taxes than you need to (D)</p> Signup and view all the answers

Can you choose any depreciation method you want for any type of property?

<p>No (D)</p> Signup and view all the answers

What is the difference between depreciation and amortization?

<p>Depreciation is for property, amortization is for intangible assets (C)</p> Signup and view all the answers

What is depreciation?

<p>A tax deduction that allows you to recover the cost of the property over time (A)</p> Signup and view all the answers

What is the purpose of determining the fair market value of the property?

<p>To determine your basis in the property (A)</p> Signup and view all the answers

What is the straight-line depreciation method?

<p>Allows you to deduct the same amount of depreciation each year over the useful life of the property (B)</p> Signup and view all the answers

What is the accelerated depreciation method?

<p>Allows you to deduct a larger amount of depreciation in the early years of ownership and a smaller amount of depreciation in the later years (A)</p> Signup and view all the answers

What determines the amount of depreciation that you can deduct each year?

<p>The type of property and the depreciation method that you use (C)</p> Signup and view all the answers

What should you do to determine the best depreciation method for you?

<p>Consult with a tax advisor (A)</p> Signup and view all the answers

What is the basis in the car that the plumber received for fixing a leaky faucet?

<p>$5,000 (A)</p> Signup and view all the answers

What is the basis in the land that the lawyer received for representing a client in a lawsuit?

<p>$100,000 (A)</p> Signup and view all the answers

What is the basis in the jewelry that the doctor received for performing surgery on a patient?

<p>$2,000 (A)</p> Signup and view all the answers

What is the useful life of the car that the plumber received for fixing a leaky faucet?

<p>5 years (C)</p> Signup and view all the answers

What is the useful life of the land that the lawyer received for representing a client in a lawsuit?

<p>27.5 years (D)</p> Signup and view all the answers

What is the useful life of the jewelry that the doctor received for performing surgery on a patient?

<p>5 years (A)</p> Signup and view all the answers

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