SEE - Special Enrollment Exam Quiz: Asset Depreciation And Amortization
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Asset Depreciation And AmortizationQuestion 1 of 15

During 2025, a calendar-year sole proprietor placed the following 5-year equipment in service: $100,000 in February, $40,000 in August, and $100,000 in December. The equipment was acquired after January 19, 2025, and is eligible for bonus depreciation. The taxpayer elected out of bonus depreciation for all 5-year property placed in service in 2025 and claimed no §179 deduction. These were the only assets the taxpayer placed in service during the year.

What is the taxpayer's regular MACRS depreciation deduction for this equipment for 2025?

$48,000
$33,000
$50,000
$46,000
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Asset Depreciation And Amortization

Practice Asset Depreciation And Amortization in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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Question 1

During 2025, a calendar-year sole proprietor placed the following 5-year equipment in service: $100,000 in February, $40,000 in August, and $100,000 in December. The equipment was acquired after January 19, 2025, and is eligible for bonus depreciation. The taxpayer elected out of bonus depreciation for all 5-year property placed in service in 2025 and claimed no §179 deduction. These were the only assets the taxpayer placed in service during the year.

What is the taxpayer's regular MACRS depreciation deduction for this equipment for 2025?

  1. $48,000
  2. $33,000
  3. $50,000
  4. $46,000 (correct answer)
Explanation: IRC § 168(d)(3). The mid-quarter convention applies when more than 40% of the aggregate basis of all property placed in service during the year is placed in service during the last three months of the year. Here, $100,000 of the $240,000 total basis (41.67%) was placed in service in December, so the mid-quarter convention applies to all three assets. For 5-year property under the mid-quarter convention, the first-year depreciation rates are 35% for first-quarter property, 15% for third-quarter property, and 5% for fourth-quarter property: $100,000 × 35% = $35,000; $40,000 × 15% = $6,000; $100,000 × 5% = $5,000; total $46,000. Choice A uses the half-year convention for all property, ignoring the 40% test, and produces $240,000 × 20% = $48,000. Choice B applies the mid-quarter rate only to the December asset and the half-year rate to the other assets: $140,000 × 20% + $100,000 × 5% = $33,000. Choice C uses the 25% second-quarter rate for the August asset: $35,000 + $10,000 + $5,000 = $50,000.

Question 2

In December 2024, a calendar-year sole proprietor signed a written binding contract to purchase a new heavy SUV for $50,000. The SUV is a four-wheeled vehicle primarily designed to carry passengers over public streets and has a gross vehicle weight rating of 7,000 pounds. The vehicle was delivered and placed in service in February 2025 and is used 100% in the taxpayer's business. It was the only asset the taxpayer placed in service during 2025. The taxpayer has taxable income far in excess of any deduction at issue and has no §179 carryover. The taxpayer elects §179 and claims all available bonus and MACRS depreciation on the vehicle.

What is the taxpayer's maximum first-year depreciation deduction for the SUV for 2025?

  1. $20,200
  2. $41,024 (correct answer)
  3. $38,780
  4. $50,000
Explanation: IRC § 179(b)(6) and IRC § 168(k); IRC § 280F(d)(5). A vehicle with a gross vehicle weight rating over 6,000 pounds is not a passenger automobile, so the luxury automobile dollar caps do not apply. The §179 deduction for a sport utility vehicle is limited to $31,300, so the taxpayer claims 31,300of§179.TheSUVwasacquiredbeforeJanuary20,2025,becausethewrittenbindingcontractwasenteredintoinDecember2024,sothebonusdepreciationrateis4031,300 of §179. The SUV was acquired before January 20, 2025, because the written binding contract was entered into in December 2024, so the bonus depreciation rate is 40%: (50,000 − $31,300) × 40% = $7,480. The remaining basis of $11,220 is depreciated under MACRS as 5-year property using the half-year convention: $11,220 × 20% = $2,244. The total is $31,300 + $7,480 + $2,244 = $41,024. Choice A treats the SUV as a passenger automobile subject to the $20,200 first-year luxury cap. Choice C omits the regular MACRS deduction on the remaining basis, giving $38,780. Choice D applies the 100% bonus rate, which is available only for property acquired after January 19, 2025.

Question 3

In 2024, a sole proprietor purchased a passenger automobile and placed it in service, using it 100% in the business. The taxpayer claimed §179 and bonus depreciation on the automobile. In 2025, the taxpayer's business use of the automobile drops to 40%, and the remaining use is personal.

Which of the following is correct regarding the 2025 tax treatment of the automobile?

  1. The taxpayer may continue using the 200% declining balance method for 2025, limited to the 40% business-use portion of the adjusted basis.
  2. The taxpayer may claim no depreciation for the automobile in 2025 and must reduce its basis by the amount of the recapture.
  3. The taxpayer must recapture the excess of prior depreciation over the straight-line ADS amount as ordinary income and use the straight-line method for 2025. (correct answer)
  4. The taxpayer must treat the automobile as sold for its fair market value in 2025 and report gain to the extent of all depreciation previously claimed.
Explanation: IRC §§ 280F(b)(2) and (b)(3). A passenger automobile is listed property; when business use falls to 50% or less, the taxpayer recaptures as ordinary income the excess of the depreciation previously allowable—including the §179 and bonus depreciation—over the depreciation that would have been allowable under the straight-line ADS method. The automobile must then be depreciated under the straight-line method for 2025 and later years, based on the remaining business-use percentage. Choice A wrongly keeps the 200% declining balance method. Choice B is wrong because depreciation is still allowable on the 40% business-use portion under the straight-line method, and recapture does not reduce basis. Choice D is wrong because no deemed sale occurs when business use merely drops below 50%.

Question 4

On October 15, 2025, a calendar-year corporation purchased all of the assets of an unrelated competitor. The purchase agreement allocated $240,000 of the purchase price to goodwill, $60,000 to the competitor's customer list, and $30,000 to a three-year covenant not to compete. The corporation began operating the acquired business immediately.

What is the corporation's amortization deduction for 2025 with respect to these purchased intangibles?

  1. $5,500 (correct answer)
  2. $3,667
  3. $7,500
  4. $11,000
Explanation: IRC § 197(a). Goodwill, a customer list, and a covenant not to compete entered into in connection with the purchase of a trade or business are §197 intangibles. They are amortized ratably over 180 months, beginning with the month of acquisition; no half-year or mid-month convention applies. The total basis is $330,000, and the monthly amortization is $330,000 ÷ 180 = $1,833.33. Because the intangibles were acquired in October, three months of amortization are allowable in 2025: $1,833.33 × 3 = $5,500. Choice B starts amortization in the month following acquisition, allowing only two months. Choice C amortizes the covenant over its stated three-year term instead of treating it as a §197 intangible. Choice D applies a half-year convention to the 180-month amortization period.

Question 5

A calendar-year taxpayer purchased a new passenger automobile for $60,000 in March 2025 and placed it in service on the same day. The automobile was acquired after January 19, 2025, and the taxpayer has never used or owned it before. The taxpayer uses the automobile 70% for business and 30% for personal purposes and does not elect §179.

What is the taxpayer's maximum depreciation deduction for the automobile for 2025?

  1. $20,200
  2. $8,540
  3. $42,000
  4. $14,140 (correct answer)
Explanation: IRC § 280F(a)(1)(A). For a passenger automobile placed in service in 2025, the first-year depreciation deduction, including bonus depreciation, is limited to $20,200. Because business use exceeds 50%, the automobile is eligible for bonus depreciation, and because it was acquired after January 19, 2025, the 100% bonus rate applies; the cap still applies. The deduction is limited to the business-use percentage of the cap: $20,200 × 70% = $14,140. Choice A applies the full cap without reducing it for the 30% personal use. Choice B uses the $12,200 cap that applies when bonus depreciation is not claimed and multiplies it by 70%. Choice C is 70% of the $60,000 cost, ignoring the luxury automobile cap.

Question 6

A calendar-year corporation placed $4,200,000 of new manufacturing equipment in service during 2025. The equipment was purchased in April 2025 and is eligible for the § 179 deduction, and the corporation elects out of bonus depreciation for this class of property. It elects to expense the maximum amount of cost permitted by the § 179 dollar limitation after the investment (phase-out) limitation. Its 2025 taxable income from the active conduct of its trades or businesses, computed without regard to the § 179 deduction, is $1,800,000.

What amount of the §179 deduction carries over to 2026?

  1. $500,000 (correct answer)
  2. $0
  3. $700,000
  4. $1,800,000
Explanation: IRC § 179(b)(1), (b)(2) and (b)(3). For 2025 the § 179 dollar limit is $2,500,000, reduced dollar for dollar by the cost of § 179 property placed in service during the year in excess of $4,000,000. The corporation placed $4,200,000 in service, so its limit is $2,500,000 - $200,000 = $2,300,000, and it elects to expense that amount. The deduction itself may not exceed business taxable income computed without regard to the § 179 deduction, which is $1,800,000. It deducts $1,800,000 for 2025, and $2,300,000 - $1,800,000 = $500,000 carries over to 2026. Choice A is correct. Choice B ignores the taxable-income limitation. Choice C ignores the investment limitation and compares the unreduced $2,500,000 with $1,800,000. Choice D is the amount deducted for 2025, not the carryover.

Question 7

A calendar-year corporation bought new 5-year equipment for $150,000 in February 2025 and placed it in service in June 2025. The equipment is qualified property that was acquired after January 19, 2025, and it has not been used or owned by any other taxpayer. The controller expects taxable income to be much higher in 2026 and would like to reduce the amount of bonus depreciation claimed for 2025.

Which of the following is correct regarding the bonus depreciation the corporation may claim for this equipment?

  1. The corporation must claim 100% bonus depreciation in 2025 for this equipment and may not elect out of bonus depreciation for the 5-year class.
  2. The corporation may elect to claim bonus depreciation at any rate between 40% and 100% for all 5-year property placed in service in 2025.
  3. The corporation may elect to claim bonus depreciation at a 40% rate instead of the 100% rate for the first tax year ending after January 19, 2025. (correct answer)
  4. The equipment qualifies for only 40% bonus depreciation because it was placed in service before July 4, 2025.
Explanation: IRC § 168(k), as amended by the One Big Beautiful Bill Act. Qualified property acquired after January 19, 2025, generally qualifies for 100% bonus depreciation, but the statute provides an election to claim a 40% bonus rate (60% for long-production-period property and certain aircraft) instead of 100% for the first tax year ending after January 19, 2025. Choice A is wrong because the election out of bonus depreciation for a class of property remains available for property acquired after January 19, 2025. Choice B misstates the election as allowing any rate between 40% and 100%; the election is to a fixed 40% rate (60% for certain property). Choice D is wrong because the 100% rate depends on the acquisition date, not the placed-in-service date; the July 4, 2025, date relates to qualified production property under §168(n), not to this equipment.

Question 8

A calendar-year corporation placed $4,500,000 of new 7-year manufacturing equipment in service during 2025, and also placed in service a newly constructed storage warehouse, used in its business, costing $900,000. The corporation does not claim bonus depreciation. For purposes of the §179 taxable-income limitation, the corporation's taxable income, computed without regard to the §179 deduction, was $2,400,000. What is the maximum §179 deduction the corporation may claim for 2025?

  1. $1,100,000
  2. $2,000,000 (correct answer)
  3. $2,400,000
  4. $2,500,000
Explanation: Choice B is correct. Under IRC § 179(b), the 2025 §179 dollar limit is $2,500,000, reduced by the amount by which §179 property placed in service during the year exceeds $4,000,000. The equipment is §179 property; the storage warehouse is not §179 property because it is a building, not tangible personal property or qualified real property as defined for §179. The cost of §179 property is therefore $4,500,000. The excess over $4,000,000 is $500,000, so the dollar limit becomes $2,000,000. This amount is below the $2,400,000 taxable-income limitation, so no further reduction applies. Choice A results from counting the warehouse in the phase-out calculation, which is improper because the warehouse is not §179 property. Choice C treats the taxable-income figure as the amount deductible rather than as a ceiling, ignoring the phase-out-limited §179 ceiling of $2,000,000. Choice D uses the unadjusted $2,500,000 limit and ignores the phase-out.

Question 9

A calendar-year corporation placed the following new 7-year equipment in service during 2025: Machine A, costing $2,400,000, was acquired and placed in service on March 1, 2025. Machine B, costing $1,000,000, was placed in service on November 1, 2025; it had been acquired under a written binding contract signed on November 15, 2024. No §179 election is made, and the corporation does not make an election to use a reduced bonus percentage. What amount of bonus depreciation may the corporation claim for 2025?

  1. $1,360,000
  2. $2,400,000
  3. $2,800,000 (correct answer)
  4. $3,400,000
Explanation: Choice C is correct. Under IRC § 168(k), for property acquired after January 19, 2025 and placed in service after that date, bonus depreciation is 100%. Machine A was acquired and placed in service on March 1, 2025, so its bonus is $2,400,000. For property acquired before January 20, 2025 and placed in service in 2025, the bonus allowance is 40% for this property. The acquisition date of Machine B is the date of the written binding contract, November 15, 2024, so Machine B's bonus is 40% of $1,000,000, or $400,000. Total bonus depreciation is $2,800,000. Choice A applies the 40% rate to both machines, but only Machine B is 40% property. Choice B omits Machine B; it still qualifies for the 40% allowance because it was placed in service in 2025. Choice D applies 100% to both machines, ignoring the binding-contract date for Machine B.

Question 10

On July 1, 2025, a calendar-year corporation purchased all the assets of an existing business. The purchase price allocation included $600,000 of tangible equipment, $240,000 for a customer list, $120,000 for a covenant not to compete with a stated term of three years, $90,000 of goodwill, and $60,000 of land. What amount of §197 amortization may the corporation deduct for 2025?

  1. $15,000 (correct answer)
  2. $30,000
  3. $31,000
  4. $35,000
Explanation: Choice A is correct. Under IRC § 197(a) and (d), goodwill, customer lists, and covenants not to compete entered into in connection with the acquisition of a business are §197 intangibles amortized ratably over 15 years beginning with the month of acquisition. The eligible intangibles total 450,000(450,000 (240,000 + $120,000 + $90,000). Annual amortization is $30,000, or $2,500 per month. Because the acquisition occurred on July 1, 2025, six months of amortization are allowed for 2025: $2,500 × 6 = $15,000. Choice B amortizes a full 12 months instead of the six months from the July acquisition. Choice C improperly amortizes the covenant over its three-year stated term; a covenant not to compete acquired in connection with a business acquisition is a §197 intangible and must be amortized over 15 years. Choice D includes the tangible equipment in the §197 amortization; equipment is depreciable property, not a §197 intangible.

Question 11

Which of the following is correct regarding the section 179 expensing election for 2025?

  1. A calendar-year taxpayer may deduct up to $2,500,000, reduced dollar-for-dollar (but not below zero) by the cost of section 179 property placed in service during the taxable year in excess of $4,000,000. (correct answer)
  2. A calendar-year taxpayer may deduct up to $1,250,000, reduced dollar-for-dollar (but not below zero) by the cost of section 179 property placed in service during the taxable year in excess of $3,130,000.
  3. A fiscal-year taxpayer whose taxable year began before January 1, 2025 and ends during 2025 may claim the $2,500,000 section 179 limit for property placed in service during that entire taxable year.
  4. A taxpayer may claim the $2,500,000 section 179 limit for 2025 only for new or used property acquired after January 19, 2025 and placed in service in a trade or business during the taxable year.
Explanation: IRC § 179(b)(1) and (b)(2). For taxable years beginning after December 31, 2024, the section 179 dollar limitation is $2,500,000 and the investment limitation is $4,000,000 (One Big Beautiful Bill Act § 70306); the dollar limit is reduced dollar-for-dollar (but not below zero) by the cost of section 179 property placed in service during the year in excess of the investment limit. A calendar-year 2025 taxpayer therefore applies the $2,500,000 limit to all qualifying property placed in service during the year. Choice B misstates the applicable limits: $1,250,000 and $3,130,000 are the pre-OBBBA figures published in Rev. Proc. 2024-40, which do not apply to taxable years beginning after December 31, 2024. Choice C misstates the effective-date rule: a fiscal-year taxpayer whose taxable year began before January 1, 2025 uses the old limits for that entire taxable year, even though part of the year falls in 2025. Choice D misstates the acquisition requirement: the January 19, 2025 date is the acquisition cutoff for the 100% bonus depreciation allowance under IRC § 168(k); section 179 imposes no similar acquisition-date condition.

Question 12

Which of the following is correct regarding the additional first-year depreciation (bonus depreciation) deduction for qualified property placed in service in 2025?

  1. All qualified property placed in service in 2025, regardless of the date it was acquired, is eligible for only a 40% additional first-year depreciation deduction.
  2. Qualified property acquired after January 19, 2025 and placed in service after that date is eligible for a 100% additional first-year depreciation deduction. (correct answer)
  3. All qualified property acquired before January 20, 2025 and placed in service in 2025 is eligible for a 60% additional first-year depreciation deduction.
  4. Used qualified property is not eligible for the 100% additional first-year depreciation deduction; bonus depreciation is limited to property whose original use commences with the taxpayer.
Explanation: IRC § 168(k). Choice B is correct: qualified property acquired after January 19, 2025 and placed in service after that date is eligible for a 100% additional first-year depreciation deduction. Choice A misstates the transition rule because 2025 property is not limited to a 40% deduction; post-January 19, 2025 acquisitions generally qualify for 100%, and certain pre-January 20, 2025 property qualifies for 60%. Choice C misstates the rate for pre-January 20, 2025 property generally: the general rate is 40%, and 60% applies only to long-production-period property and certain aircraft. Choice D misstates the used-property rule: used qualified property acquired from an unrelated party and not used by the taxpayer before acquisition can qualify for the 100% deduction.

Question 13

A taxpayer acquired a section 197 intangible on March 15, 2025, for $180,000 and placed it in service on the same date. Which of the following is correct regarding the amortization of the intangible for 2025 and 2026?

  1. The 2025 amortization deduction is $9,500, and the 2026 deduction is $12,000.
  2. The 2025 amortization deduction is $12,000, and the 2026 deduction is $12,000.
  3. The 2025 amortization deduction is $10,000, and the 2026 deduction is $12,000. (correct answer)
  4. The 2025 amortization deduction is $6,000, and the 2026 deduction is $12,000.
Explanation: IRC § 197(a). A section 197 intangible is amortized ratably over 180 months beginning with the month of acquisition, and the month of acquisition counts as a full month. The $180,000 basis divided by 180 months yields $1,000 per month. Because the intangible was acquired on March 15, 2025, amortization runs from March 2025, so the 2025 deduction is 10 months × $1,000 = $10,000, and the 2026 deduction is 12 months × $1,000 = $12,000. Choice A misstates the convention: section 197 uses no mid-month convention, so applying the real-property rule would produce only 9.5 months, or $9,500, in 2025. Choice B misstates the proration: it treats the intangible as held for a full 12 months in the acquisition year, ignoring that the acquisition occurred in March. Choice D misstates the convention: the MACRS half-year convention for personal property does not apply to section 197 intangibles and would produce only 6 months, or $6,000, in 2025.

Question 14

Which of the following is correct regarding the depreciation limits for a passenger automobile placed in service in 2025?

  1. The first-year depreciation limit applies only to the bonus depreciation claimed on the automobile; the regular MACRS depreciation and any section 179 deduction are not subject to the limit.
  2. If the taxpayer elects out of bonus depreciation, the maximum first-year depreciation deduction for the automobile is $20,200.
  3. The maximum depreciation deduction for the second year of the automobile's recovery period is $20,200, the same as the first-year limit.
  4. If the taxpayer claims the bonus depreciation deduction, the maximum first-year depreciation deduction for the automobile is $20,200. (correct answer)
Explanation: IRC § 280F(a)(1). The annual depreciation deduction for a passenger automobile is limited by a dollar cap. For an automobile placed in service in 2025, the first-year cap is $20,200 if the taxpayer claims bonus depreciation and $12,200 if the taxpayer elects out of bonus depreciation; the second-year cap is $19,600. Choice D is correct: with bonus depreciation, the first-year deduction cannot exceed $20,200. Choice B misstates the cap for a taxpayer who elects out of bonus depreciation: the first-year limit is $12,200, not $20,200. Choice C misstates the year-2 cap: the second-year limit is $19,600, not $20,200. Choice A misstates the scope of the cap: the $280F limit applies to the total depreciation deduction for the year, including regular MACRS depreciation, any section 179 deduction, and bonus depreciation.

Question 15

A calendar-year sole proprietor placed $4,900,000 of new seven-year machinery in service during 2025. All of the property is section 179 property. Her taxable income from the active conduct of her business, before any section 179 deduction, is $2,000,000. She does not claim bonus depreciation. What is the maximum section 179 deduction she may claim for 2025?

  1. $1,600,000 (correct answer)
  2. $2,500,000
  3. $1,250,000
  4. $2,000,000
Explanation: Choice A is correct. Under IRC §179(b), for tax years beginning in 2025 the section 179 expensing limit is $2,500,000, reduced dollar-for-dollar by the cost of section 179 property placed in service during the year that exceeds $4,000,000. Because $4,900,000 of section 179 property was placed in service, the reduction is $900,000, leaving $1,600,000 as the maximum section 179 deduction. Her taxable income from the active conduct of her business, $2,000,000, exceeds $1,600,000, so the taxable-income limit in §179(b)(3) does not bind. Choice B ignores the phase-out. Choice C uses the pre-OBBBA 2025 dollar limit of $1,250,000 rather than the OBBBA-increased 2025 figure of $2,500,000. Choice D applies the taxable-income limit but omits the phase-out reduction and is therefore too high.