# Tax Chapter 10B

**Flashcard maker :**Lily Taylor

True / False Questions

1. If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

11. Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock’s maximum depreciation for this first year, rounded to the nearest whole number:

A. $2,648

B. $3,371

C. $3,751

D. $4,774

E. None of these

The mid-month convention applies. Non-residential property has a 39-year recovery period. The depreciation is $2,648 ($275,000 × .963%).

A. $1,605

B. $2,273

C. $2,408

D. $3,410

E. None of these

The mid-month convention applies. Residential property has a 27.5-year recovery period. The depreciation is $2,273 ($100,000 × 2.273%).

A. $641

B. $909

C. $5,128

D. $7,346

E. None of these

The mid-month convention applies. Non-residential property has a 39-year recovery period. The depreciation is $641 ($200,000 × 2.564% × 1.5/12).

A. $0

B. $1,250

C. $1,319

D. $1,389

E. None of these

The full-month convention applies. §197 assets have a recovery period of 180 months. The amortization is $1,389 ($25,000/180) × 10).

A. $0

B. $2,500

C. $5,000

D. $10,000

E. None of these

$5,000 of start-up expenses can be immediately expensed. The $5,000 maximum phases out dollar for dollar if more than $50,000 of start-up costs are incurred.

A. $2,555

B. $3,544

C. $5,522.

D. $52,000

E. None of these

The maximum immediate expense amount of $5,000 phases out dollar for dollar if more than $50,000 of start-up costs are incurred. Thus, the immediate expensing is $3,000 ($5,000 – ($52,000 – $50,000)). The amortization is $544 ($49,000/180) × 2 months).

A. $0

B. $6,500

C. $7,000

D. $12,000

E. None of these

The amortization when capitalization is elected is $7,000 ($60,000/60) × 7 months). The amortization period on capitalized research and development is not less than 60 months—and 60 months is the most often elected.

A. $0

B. $5,500

C. $6,000

D. $12,000

E. None of these

The amortization is $6,000 ($75,000/75) × 6). The amortization period on a purchased patent is the asset’s remaining useful life.

A. $2,417

B. $2,559

C. $4,108

D. $4,350

E. None of these

The amortization is $4,350 ($58,000/120) × 9 months). The amortization period is the asset’s expected useful life (10 years in this case) or 17 years (whichever is longer).

20. Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16th with a basis of $5,000 and furniture (7-year property) on September 9th with a basis of $20,000. Calculate the maximum depreciation expense (ignoring section 179 or bonus expensing):

The half-year convention applies since less than 40 percent of the property was placed in service during the fourth quarter. The calculations are $5,000 × .2 = $1,000 and $20,000 × .1429 = $2,858. The total is $3,858 ($1,000 + $2,858).

The mid-quarter convention applies since more than 40 percent of the property was placed in service during the fourth quarter. The calculations are $10,000 × .25 = $2,500 and $10,000 × .0357 = $357. The total is $2,857 ($2,500 + $357).

The $500,000 section 179 expense is limited to $100,000 because of the property placed in service limitation ($2,500,000 – $2,400,000). The mid-quarter convention applies. The expense is $130,345 which is depreciation of $2,300,000 × .0357 = $82,110 plus $100,000 of section 179 expense.

The depreciation on those assets are $51,000 × .1249 × 1/2 year = $3,185 and $16,000 × .1968 × 1.5/12 = $394, the total is $3,579 ($3,185 + $394).