Tax Accounting Chapter 9 Study test 2023

Cost Recovery - common term used to describe the process by which businesses allocate the cost of their fixed assets over the time period in which the assets are used. Cost Basis - businesses may begin using the asset in their business (cost basis) once they begin using the asset in their business (place it in service) Adjusted basis or tax basis - The amount of an asset's cost that has yet to be recovered through cost recovery deductions. Can be computed by subtracting the accumulated depreciation (or amortization or depletion) from the asset's initial cost or historical basis Initial (cost) Basis - cost plus all of the expenses to purchase, prepare it for use, and begin using the asset. These costs may include sales tax, shipping, and installation. Routine maintenance costs - immediately deductible as ordinary business expense New Asset for cost recovery purposes - If additional cost significantly extends an asset's useful life or increases the value of the asset Cost Basis for each separate asset - when as business acquires multiple assets for one purchase price, tax laws require. The assets are generally determined by an appraisal. Personal Property (Depreciation) - comprised of tangible assets such as automobiles, equipment, and machinery Real Property (Depreciation) - comprised of buildings and land (although land is not depreciable) Intangible Assets (Amortization) - nonphysical assets such as goodwill and patents