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What is the depreciation period for Section 197 intangibles?
What is the depreciation period for Section 197 intangibles?
Which of the following is NOT considered a Section 197 intangible?
Which of the following is NOT considered a Section 197 intangible?
What is the requirement for a taxpayer to claim depletion deduction?
What is the requirement for a taxpayer to claim depletion deduction?
Which of the following is an example of a Section 1245 property?
Which of the following is an example of a Section 1245 property?
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What is the depreciation method used for residential rental property under the General Depreciation System (GDS)?
What is the depreciation method used for residential rental property under the General Depreciation System (GDS)?
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What is the recapture amount for a Section 1250 residential rental property?
What is the recapture amount for a Section 1250 residential rental property?
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Which of the following transactions qualify for treatment under Section 1231?
Which of the following transactions qualify for treatment under Section 1231?
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What is the treatment of recognized gain for a Section 1245 property?
What is the treatment of recognized gain for a Section 1245 property?
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What is the maximum amount of depreciation that can be taken on a $17,500 automobile used 60% for business in 2023?
What is the maximum amount of depreciation that can be taken on a $17,500 automobile used 60% for business in 2023?
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Which of the following is NOT considered a startup expenditure?
Which of the following is NOT considered a startup expenditure?
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What is the maximum amount of Sec. 179 expense allowed for Sec. 179 property in 2023?
What is the maximum amount of Sec. 179 expense allowed for Sec. 179 property in 2023?
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What is the method of depreciation used for Sec. 1245 property?
What is the method of depreciation used for Sec. 1245 property?
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What is the maximum percentage depletion allowed on coal?
What is the maximum percentage depletion allowed on coal?
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How is gain on the disposition of Sec. 1245 property treated?
How is gain on the disposition of Sec. 1245 property treated?
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Which of the following is NOT subject to MACRS depreciation?
Which of the following is NOT subject to MACRS depreciation?
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Which of the following is NOT a limitation on the Sec. 179 deduction?
Which of the following is NOT a limitation on the Sec. 179 deduction?
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Which of the following properties are subject to the limitations on depreciation for listed property?
Which of the following properties are subject to the limitations on depreciation for listed property?
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Which of the following statements is true about the depreciation of Sec. 1250 property?
Which of the following statements is true about the depreciation of Sec. 1250 property?
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On December 31, 2023, John sold an apartment building for $243,500. He had purchased the building several years ago for $192,500. The depreciation deducted as of December 31, 2022, was $49,000. In 2023, the depreciation deducted was $7,000. Under an accelerated method, total depreciation would include $27,000 of excess depreciation. What amount may John treat as a Sec. 1231 gain?
On December 31, 2023, John sold an apartment building for $243,500. He had purchased the building several years ago for $192,500. The depreciation deducted as of December 31, 2022, was $49,000. In 2023, the depreciation deducted was $7,000. Under an accelerated method, total depreciation would include $27,000 of excess depreciation. What amount may John treat as a Sec. 1231 gain?
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Chris, a tennis pro, has built a tennis facility to suit her business needs. During Year 1, Chris purchased five ball machines for $3,500. Depreciation was correctly allowable on the ball machines as follows: Year 1 $500; Year 2 $1,250. Chris sold all of the ball machines in January of Year 3 for $2,500. What is the amount and character of the disposition of the ball machines?
Chris, a tennis pro, has built a tennis facility to suit her business needs. During Year 1, Chris purchased five ball machines for $3,500. Depreciation was correctly allowable on the ball machines as follows: Year 1 $500; Year 2 $1,250. Chris sold all of the ball machines in January of Year 3 for $2,500. What is the amount and character of the disposition of the ball machines?
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Karey bought a small shopping mall 10 years ago for a total price of $2 million. Karey chose to use straight-line depreciation and deducted $423,000 before the mall was sold for $2.5 million on December 31 of the current year. The gain on the sale should be reported as
Karey bought a small shopping mall 10 years ago for a total price of $2 million. Karey chose to use straight-line depreciation and deducted $423,000 before the mall was sold for $2.5 million on December 31 of the current year. The gain on the sale should be reported as
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Canary owns a zinc mine for which he paid $900,000. He has claimed $410,000 in depletion in prior years. There were 750,000 tons of zinc when Canary acquired the mine. The beginning-of-the-year estimate indicated 350,000 tons of zinc remained. In the current year, he sold 90,000 tons of zinc. His gross income from the zinc was $1.5 million, and his taxable income before depletion was $380,000. The depletion rate for zinc is 22%. What is Canary's percentage depletion deduction for the current year?
Canary owns a zinc mine for which he paid $900,000. He has claimed $410,000 in depletion in prior years. There were 750,000 tons of zinc when Canary acquired the mine. The beginning-of-the-year estimate indicated 350,000 tons of zinc remained. In the current year, he sold 90,000 tons of zinc. His gross income from the zinc was $1.5 million, and his taxable income before depletion was $380,000. The depletion rate for zinc is 22%. What is Canary's percentage depletion deduction for the current year?
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Allen purchased a trademark on January 1 of last year for $150,000. On January 1 of this year, Allen sold the trademark for $200,000. How much of Allen's gain on the sale of the trademark is Sec. 1245 gain?
Allen purchased a trademark on January 1 of last year for $150,000. On January 1 of this year, Allen sold the trademark for $200,000. How much of Allen's gain on the sale of the trademark is Sec. 1245 gain?
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An election to amortize is deemed to have been made for qualifying costs of organization for a partnership. Which of the following is NOT considered a qualifying cost?
An election to amortize is deemed to have been made for qualifying costs of organization for a partnership. Which of the following is NOT considered a qualifying cost?
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Donny owns and leases a coal mine to Brian. The lease agreement states that Brian will pay Donny $4 per ton royalty on coal mined. What is Brian's percentage depletion deduction for the current year from the information given below? Gross income from coal $250,000 Income from trucking coal $20,000 Royalty paid Donny $30,000 Taxable income on coal (excluding depletion) $40,000 Coal depletion rate 10%
Donny owns and leases a coal mine to Brian. The lease agreement states that Brian will pay Donny $4 per ton royalty on coal mined. What is Brian's percentage depletion deduction for the current year from the information given below? Gross income from coal $250,000 Income from trucking coal $20,000 Royalty paid Donny $30,000 Taxable income on coal (excluding depletion) $40,000 Coal depletion rate 10%
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In 2020, Ben purchased a truck for $15,000. In 2020, he claimed a $3,000 Sec. 179 deduction and began depreciating the truck. He sold the truck in 2023 for $13,000. Prior to the sale, Ben claimed MACRS deductions of $8,000. Had Ben claimed straight-line depreciation, he would have claimed $6,000 prior to the sale. What amount of gain on the sale is treated as ordinary income in 2023?
In 2020, Ben purchased a truck for $15,000. In 2020, he claimed a $3,000 Sec. 179 deduction and began depreciating the truck. He sold the truck in 2023 for $13,000. Prior to the sale, Ben claimed MACRS deductions of $8,000. Had Ben claimed straight-line depreciation, he would have claimed $6,000 prior to the sale. What amount of gain on the sale is treated as ordinary income in 2023?
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Matthew acquired a Sec. 1250 residential rental building for $200,000. He sold the building in 2023 for $300,000. Matthew depreciated his building using the straight-line method, deducting $120,000 in depreciation. What amount of Matthew's gain is treated as ordinary income?
Matthew acquired a Sec. 1250 residential rental building for $200,000. He sold the building in 2023 for $300,000. Matthew depreciated his building using the straight-line method, deducting $120,000 in depreciation. What amount of Matthew's gain is treated as ordinary income?
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Which of the following statements about ADS (alternative depreciation system) is false?
Which of the following statements about ADS (alternative depreciation system) is false?
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All of the following are considered Sec. 197 intangibles EXCEPT
All of the following are considered Sec. 197 intangibles EXCEPT
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For a taxpayer to claim a deduction for depletion, (s)he must possess an “economic interest” in the natural resource. For an economic interest to be considered present, the taxpayer is only required to
For a taxpayer to claim a deduction for depletion, (s)he must possess an “economic interest” in the natural resource. For an economic interest to be considered present, the taxpayer is only required to
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In 2023, your construction company bought and placed in service dump trucks that cost $1,058,000 and equipment that cost $111,000. Section 179 expensing was elected and applied $111,000 to the equipment and $1,049,000 to the dump trucks, for a total of $1,160,000. What is the depreciable basis in each item for 2023?
In 2023, your construction company bought and placed in service dump trucks that cost $1,058,000 and equipment that cost $111,000. Section 179 expensing was elected and applied $111,000 to the equipment and $1,049,000 to the dump trucks, for a total of $1,160,000. What is the depreciable basis in each item for 2023?
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With regard to the modified accelerated cost recovery system (MACRS), which of the following statements is false?
With regard to the modified accelerated cost recovery system (MACRS), which of the following statements is false?
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On August 1, 2023, Bruce opened a framing and art supply store. Prior to opening the business, he incurred the following costs: Legal fees related to setup $25,000 Office equipment 15,000 Interest expense for funds borrowed prior to opening 5,000 Market analysis 7,500 Travel expense to secure supplier 30,000 Total $82,500. What is Bruce's amortization expense for start-up expenditures on his 2023 income tax return?
On August 1, 2023, Bruce opened a framing and art supply store. Prior to opening the business, he incurred the following costs: Legal fees related to setup $25,000 Office equipment 15,000 Interest expense for funds borrowed prior to opening 5,000 Market analysis 7,500 Travel expense to secure supplier 30,000 Total $82,500. What is Bruce's amortization expense for start-up expenditures on his 2023 income tax return?
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Flashcards
Sec. 1245 property
Sec. 1245 property
Property where recaptured gain is ordinary income up to total depreciation taken.
Percentage depletion allowance
Percentage depletion allowance
A deduction based on gross income, limited to specific percentages.
Sec. 179 expense
Sec. 179 expense
Allows taxpayers to deduct certain property costs as business expenses up to $1,160,000.
Capital recovery deductions
Capital recovery deductions
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Listed property
Listed property
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MACRS
MACRS
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GDS vs ADS
GDS vs ADS
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Depreciation recapture
Depreciation recapture
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Sec. 280F limits
Sec. 280F limits
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Startup expenditures
Startup expenditures
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Sec. 197 Intangibles
Sec. 197 Intangibles
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Economic Interest
Economic Interest
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Depletion Deduction
Depletion Deduction
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Sec. 1231 Gain
Sec. 1231 Gain
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Residential Rental Depreciation
Residential Rental Depreciation
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Section 1250
Section 1250
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Study Notes
Section 197 Intangibles
- Section 197 intangibles (licenses, permits, covenants not to compete, workforce in place, goodwill, going concern value) are amortized over 15 years.
- Rights to tangible property granted by a governmental agency are excluded from Section 197 regulations.
Depreciation - Depletion
- To deduct depletion, a taxpayer must have an "economic interest" in a natural resource.
- This includes acquiring a mineral in place, and actively looking for the extraction and sale of the mineral.
Depreciation - Depreciation Recapture
- Storage facilities, client files, and office equipment are examples of Section 1245 property.
- Buildings, including those with elevators, are not.
Unit 7.1 - Recreational Property
- If recreational property is used 60% for business, it's considered listed property.
- A truck weighing 17,000 lbs. is not.
Unit 7.2 - Section 179 Deduction
- The Section 179 deduction is capped by taxable income for the year.
Unit 7.4 - Depletion Calculation
- Depletion per unit = (Acquisition Base (AB)) / (Total Units of Mineral).
- Cost Depletion Deduction = (Depletion per Unit) * (Units Sold).
Unit 7.5 - Section 1231 and Related Properties
- POS systems, building condemnations, and sale of leasehold buildings are eligible for Section 1231 treatment.
- Personal pleasure boats are not.
- Sale of an apartment building is Section 1250 real property.
- Recapture as ordinary income is 0 if the additional depreciation is 0. Thus, realized gain is considered Section 1231 gain.
- Section 1245 property realized gain is recognized as ordinary income up to the amount of depreciation taken.
Section 197 Intangibles (Further Detail)
- Amortization is performed over 15 years, regardless of the asset's useful life.
Section 1250 Recapture
- Additional depreciation for residential rental property using the straight-line method is $0.
- Recaptured amount is the lesser of the recognized gain or additional depreciation (excess over straight-line).
Section 1231 Transactions
- Section 1231 transactions pertain to real estate and equipment but NOT intangibles (goodwill, copyrights, etc.).
Residential Rental Property (GDS)
- Residential rental property depreciation using GDS is 27.5 years straight-line.
- Taxpayers can elect 30 years straight-line under ADS.
Section 1245 Property
- Equipment is Section 1245 property.
- Recognized gain is the lesser of depreciation taken or realized gain.
- Section 1231 gain is the remainder of the realized gain over the depreciation.
- Ordinary income equals the total depreciation (including Section 179 expense) on Section 1245 property.
Section 611(a) - Depletion
- Section 611(a) allows reasonable depletion allowances for mines, oil/gas wells, other natural deposits, and timber.
- Percentage depletion (for non-oil/gas wells) is the lesser of 10% of gross income or 50% of taxable income.
Section 179 Expense (2023)
- Section 179 allows the expensing of up to $1,160,000 for qualifying property acquired during the year.
- For automobiles, this is limited by the $12,200 maximum capital recovery.
- The expense is reduced by personal use during the year.
- Limitations may reduce the permitted Section 179 deduction by the difference between $2,890,000 and the asset cost.
Section 1231 vs Section 1245
- Tennis ball machines are Section 1245 property.
- Gain/loss is recognized as the lesser of realized gain or depreciation.
Leased Building Improvements
- Lease improvements are subject to MACRS depreciation, NOT lease term.
MACRS Depreciation
- MACRS provides two systems (GDS and ADS) for depreciating property.
- ADS is used for property predominantly used outside the US, tax-exempt property, and tax-exempt bond-financed property.
- ADS election is optional for tangible personal property.
Startup Expenditures
- Startup expenditures include travel, accounting fees, research, employee finding, and marketing.
- These do NOT include logo design, trademark purchases, or interest expense.
Listed Property
- Listed property, which includes automobiles, certain vehicles, entertainment/recreation property, and other property designated by regulations, has depreciation limited by qualified business use.
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Description
This quiz covers key taxation concepts including Section 197 intangibles, depreciation methods, and the Section 179 deduction. Learn about the amortization of intangibles, economic interest in natural resources, and the specifics of listed property. Test your knowledge of recreational property regulations and various tax deductions.
