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  • Tax ch10

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    Finan Sileshi
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    An asset's basis is the amount that is subject to cost recovery. Expenditures on an asset are either expensed currently or capitalized as a new asset. MACRS for tangible personal property is based upon recovery period. Real property is divided into two groups for tax purposes: residential rental and nonresidential.

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    An asset's basis is the amount that is subject to cost recovery. Expenditures on an asset are either expensed currently or capitalized as a new asset. MACRS for tangible personal property is based upon recovery period. Real property is divided into two groups for tax purposes: residential rental and nonresidential.

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    16 views4 pages

    Tax ch10

    Uploaded by

    Finan Sileshi
    An asset's basis is the amount that is subject to cost recovery. Expenditures on an asset are either expensed currently or capitalized as a new asset. MACRS for tangible personal property is based upon recovery period. Real property is divided into two groups for tax purposes: residential rental and nonresidential.

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    of 4

    Page1040

    AppendixMACRSTables

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    Summary
    LO101
    Explaintheconceptofbasisandadjustedbasisanddescribethecostrecoverymethodsusedunderthe
    taxlawtorecoverthecostofpersonalproperty,realproperty,intangibleassets,andnaturalresources.
    Tangiblepersonalandrealproperty(depreciation),intangibles(amortization),andnatural
    resources(depletion)areallsubjecttocostrecovery.
    Anasset'sbasisistheamountthatissubjecttocostrecovery.Generally,anasset'sinitialbasisis
    itspurchaseprice,plusthecostofanyotherexpensesincurredtogettheassetinworking
    condition.
    Thetaxpayer'sbasisofassetsacquiredinanontaxableexchangeisthesamebasisthetaxpayer
    transferredtoacquirethepropertyreceived.
    Expendituresonanassetareeitherexpensedcurrentlyorcapitalizedasanewasset.Expenditures
    forroutineorgeneralmaintenanceoftheassetareexpensedcurrently.Expendituresthatextendthe
    usefullifeoftheassetarecapitalized.
    Whenacquiringabusinessandpurchasingabundleofproperty,thebasisofeachassetis
    determinedasthefairmarketvalueoftheasset.
    LO102
    Determinetheapplicablecostrecovery(depreciation)life,method,andconventionfortangiblepersonal
    andrealpropertyandcalculatethedeductionallowableunderbasicMACRS.
    TaxdepreciationiscurrentlycalculatedundertheModifiedAcceleratedCostRecoverySystem
    (MACRS).
    MACRSfortangiblepersonalpropertyisbaseduponrecoveryperiod(Rev.Proc.8756),method
    (200percentdecliningbalance,150percentdecliningbalance,andstraightline),andconvention
    (halfyearormidquarter).
    Realpropertyisdividedintotwogroupsfortaxpurposes:residentialrentalandnonresidential.The
    recoveryperiodis27.5yearsforresidentialpropertyand31.5yearsor39yearsfornonresidential
    property,dependingonwhenthepropertywasplacedinservice.Thedepreciationmethodis
    straightlineandtheconventionismidmonth.
    LO103

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