tailieunhanh - Lecture Taxation of individuals and business entities 2015 - Chapter 9: Property acquisition and cost recovery

Upon completion of this lesson, the successful participant will be able to: Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources; determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under MACRS;. | Chapter 9 Property Acquisition and Cost Recovery Learning Objectives Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under MACRS Explain the additional special cost recovery rules (§179, bonus, listed property) and calculate the deduction allowable under these rules. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense Explain cost recovery of natural resources and the allowable depletion methods Cost Recovery Businesses must capitalize the cost of assets with a useful life of more than one year on the balance sheet rather than expense the cost immediately Also known as depreciation, | Chapter 9 Property Acquisition and Cost Recovery Learning Objectives Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under MACRS Explain the additional special cost recovery rules (§179, bonus, listed property) and calculate the deduction allowable under these rules. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense Explain cost recovery of natural resources and the allowable depletion methods Cost Recovery Businesses must capitalize the cost of assets with a useful life of more than one year on the balance sheet rather than expense the cost immediately Also known as depreciation, amortization, or depletion – depending upon the underlying nature of asset Business use these methods to recover cost of assets due to wear, tear and obsolescence of assets Different methods to recover the costs of assets Depreciation - Deducting the cost of tangible personal and real property (other than land) over a specific period of time Amortization - Deducting the cost of intangible property over a specific period of time Depletion - Deducting the cost of natural resources over time Cost Recovery Cost Recovery Basis for Cost Recovery – Once the use of purchased assets is started, recouping the cost of assets also starts Cost basis reduces when cost is recovered through Cost Recovery Deductions which is called Assets Adjusted Basis or Tax Basis Assets Adjusted Basis = Assets Initial Cost or Historical basis minus Accumulated Depreciation (Amortization or Depletion) Depreciation Before 1981, tax depreciation methods closely resembled financial accounting methods which required .