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1. Like financial accounting, most business property must be
capitalized for tax purposes.

2. Tax cost recovery methods include depreciation,
amortization, and depletion.

3. If a business mistakenly claims too little depreciation,
the business must only reduce the asset’s basis by
the depreciation actually taken rather than the amount of
the allowable depreciation.

4. An asset’s capitalized cost basis includes only the
actual purchase price; whereas the other expenses
associated with the asset are immediately expensed.

5. The basis for a personal use asset converted to business
use is the lesser of the asset’s cost basis or fair
market value on the date of the transfer or conversion.

6. Depreciation is currently computed under the Modified
Accelerated Cost Recovery System
(MACRS).

7. The 200 percent or double declining balance method is
allowable for five and seven year property.

8. Taxpayers may use historical data to determine the
recovery period for tax depreciation.

9. Taxpayers use the half-year convention for all assets.

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

11. The MACRS depreciation tables automatically switch to
the straight-line method when it exceeds the
declining balance method.

12. If tangible personal property is depreciated using the
half-year convention and is disposed of during
the first quarter of a subsequent year, the taxpayer must
use the mid-quarter convention for the year of
disposition.

13. If a machine (seven-year property) being depreciated
using the half-year convention is disposed of during
the seventh year, a taxpayer must multiply the appropriate
depreciation percentage from the MACRS
table percentage by 50 percent to calculate the depreciation
expense properly.

14. Real property is always depreciated using the
straight-line method.

15. The mid-month convention applies to real property in the
year of acquisition and disposition.

16. All taxpayers may use the section 179 immediate
expensing election on certain property.

17. The section 179 immediate expensing election phases out
based upon a taxpayer’s taxable income.

18. The section 179 immediate expensing election phases out
based upon the amount of tangible personal
property a taxpayer places in service during the year.

19. Property expensed under the section 179 immediate
expensing election is not included in the 40 percent
test to determine whether the mid-quarter convention must be
used.

20. In general, a taxpayer should select longer-lived
property for the section 179 immediate expensing
election.

21. Occasionally bonus depreciation is used as a stimulus
tool by tax policy makers.

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

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

24. Significant limits are placed on the depreciation of
luxury automobiles.

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

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