Question 1

Used property is eligible for bonus depreciation.

Accepted Answer

According to the current tax laws, used property is eligible for bonus depreciation, as long as it meets certain criteria such as being acquired and placed in service after September 27, 2017.

Question 2

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Accepted Answer

When a business purchases a patent or copyright, the cost is capitalized and amortized over its useful life. However, if the business self-creates the intangible, only the costs that can be directly attributed to the creation process (like legal fees for patent registration) are capitalized and amortized; many initial research and development costs are expensed as incurred.

Question 3

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Accepted Answer

The answer of To increase their depreciation deduction on automobiles,...

Question 4

Bonus depreciation is used as a stimulus tool by tax policy makers.

Accepted Answer

Bonus depreciation is used to encourage businesses to invest in new equipment and assets by allowing them to deduct a larger portion of the cost in the first year of ownership. This serves as a stimulus tool to boost economic growth and job creation.

Question 5

Tax cost recovery methods do not include:
A)Amortization.
B)Capitalization.
C)Depletion.
D)Depreciation.
E)All of the choices are tax cost recovery methods.

Accepted Answer

Capitalization is not a tax cost recovery method. It refers to the treatment of an expenditure as a capital expense, which is not deductible as an expense in the year of purchase. The cost of the asset is recovered through depreciation or amortization over a period of time. Amortization, depletion, and depreciation are all tax cost recovery methods.

Question 6

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Accepted Answer

This statement is true. Businesses have the option to immediately expense research and experimentation costs or capitalize them and amortize over a period of not less than 60 months using the straight-line method.

Question 7

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

Accepted Answer

Listed property includes assets such as vehicles, computers, and cell phones that are used both for business and personal purposes.

Question 8

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Accepted Answer

Major integrated oil and gas producers are generally not allowed to take percentage depletion for tax purposes; they must use cost depletion. Percentage depletion is available only to independent producers and royalty owners under U.S. tax law.

Question 9

An office desk is an example of:
A)Personal property.
B)Personal-use property.
C)Real property.
D)Business property.
E)Personal property and business property.

Accepted Answer

An office desk is considered personal property because it is movable and not permanently attached to the land or buildings. When used in a business context, it also qualifies as business property, reflecting its role in commercial activities.

Question 10

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the amount of depreciation that can be taken on luxury automobiles. This is to prevent taxpayers from taking large deductions on vehicles that are deemed excessive or unnecessary for business purposes.

Question 11

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of calculating the depreciation or depletion of natural resources, such as oil, gas, or minerals, based on the cost incurred to acquire or develop the resource. It is available to all natural resource producers who own or have a working interest in the property.

Question 12

If the business-use percentage for listed property falls below 50 percent, the only adjustment is that all future depreciation must be calculated under the straight-line method.

Accepted Answer

If the business-use percentage for listed property falls below 50 percent, not only must all future depreciation be calculated under the straight-line method, but the taxpayer may also need to recapture any excess depreciation taken in previous years over the amount that would have been allowed using the straight-line method.

Question 13

The method for tax amortization is always the straight-line method.

Accepted Answer

The answer of The method for tax amortization is always...

Question 14

Which of the following business assets is not depreciated?
A)Automobile.
B)Building.
C)Patent.
D)Machinery.
E)All of the assets are depreciated.

Accepted Answer

Patents are not depreciated because they have a limited life, usually 20 years, and are amortized (expensed) over their useful life instead of being depreciated. All other assets listed - Automobile, Building, Machinery - are tangible assets that are subject to depreciation.

Question 15

All assets subject to amortization have the same recovery period.

Accepted Answer

Different types of assets can have different recovery periods for amortization under tax rules, such as buildings (27.5 years), intangible assets (varies), and equipment (varies).

Question 16

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Accepted Answer

The answer of The alternative depreciation system requires both a...

Question 17

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Accepted Answer

Depletion is a legitimate tax deduction that allows taxpayers to recover their investment in natural resources such as oil, gas, minerals, and timber. It is calculated based on the amount of the natural resource extracted and the taxpayer's basis in the resource.

Question 18

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Accepted Answer

Businesses can deduct percentage depletion when they sell the natural resource based on a percentage of the gross income from the sale. They can also deduct cost depletion as they extract or produce the natural resource, based on the cost of acquiring and developing the resource.

Question 19

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Accepted Answer

Taxpayers may generally deduct up to $5,000 of start-up costs in the year the business begins and must amortize any remaining costs over a period of 180 months. Organizational expenditures must also be amortized over 180 months.

Question 20

Goodwill and customer lists are examples of §197 amortizable assets.

Accepted Answer

Goodwill and customer lists are both examples of intangible assets that are considered §197 assets under the Internal Revenue Code. These assets can be amortized over a 15-year period for tax purposes.

Quiz 10: Property Acquisition and Cost Recovery