ch 10 tax pdf

Cost Recovery

The process of recovering the costs associated with capital assets through depreciation, amortization, or depletion.

Depreciation

A method for allocating the cost of tangible personal and real property (excluding land) over a specified period of time.

Amortization

The process of deducting the cost of intangible assets over a specific period of time.

Depletion

A method used to allocate the cost of natural resources over time as they are consumed.

MACRS

Modified Accelerated Cost Recovery System, a method of depreciation for tax purposes.

Initial Basis

The total cost of an asset upon acquisition, which includes purchase price and additional expenses.

Adjusted Basis

The original basis of an asset minus any deductions taken for depreciation, amortization, or depletion.

Half-Year Convention

A depreciation convention allowing for half of a full year's depreciation in the first and last years of an asset's life.

Mid-Quarter Convention

A special depreciation convention applicable when more than 40% of used property is placed in service in the last quarter of a tax year.

Bonus Depreciation

An additional depreciation deduction allowed for certain types of property, often enacted to stimulate economic activity.

Section 179 Expense

A provision allowing businesses to deduct the full purchase price of qualifying equipment as an expense in the year of purchase.

Intangible Assets

Non-physical assets such as goodwill, patents, and trademarks, which are amortized over time.

Luxury Automobile Limits

Depreciation limits imposed on luxury vehicles to restrict the amount that can be deducted annually.

Cost Depletion

A method to determine the depletion deduction based on the basis allocated to resources divided by the estimated units.

Percentage Depletion

A method that allows a business to deduct a percentage of gross income derived from resource extraction.

Recovery Period

The time period designated by tax authorities over which an asset is depreciated or amortized.

Asset Classification

The categorization of assets into different classes for depreciation based on their nature and use.