Question

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

a. True
b. False

Answer 1

The statement is true because if the business use of a listed property drops to 50% or less during the recovery period, there might be tax implications such as depreciation recapture and a change in depreciation methods.

Step-by-step explanation:

The answer to the question is True. Under tax regulations, the listed property must meet a more than 50% business usage requirement to qualify for favourable depreciation methods such as accelerated depreciation. If the business use of the listed property falls to 50% or less during the recovery period, the owner may be required to recapture some of the depreciation claimed in previous years and switch to the straight-line method for future depreciation. This is because the initial qualification for such methods is contingent upon the business use percentage being maintained throughout the recovery period. Therefore, continued compliance with the business usage test is essential even after the property first qualifies.