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BUS 419 Chapter 10 Property Acquisiiton and Cost Recovery
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- 1Adjusted basisAn asset's carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization. Also called adjusted tax basis.
- 2Amortizationthe method of recovering the cost of intangible assets over a specific time period.
- 3Bonus depreciationadditional depreciation allowed in the acquisition year for tangible personal property with a recovery period of 20 years or less.
- 4Cost depletionthe method of recovering the cost of a natural resource that allows a taxpayer to estimate or determine the number of units that remain in the resource at the beginning of the year and allocate a pro rata share of the remaining basis to each unit of the resource that is extracted or sold during the year
- 5Cost recoverythe method by which a company expenses the cost of acquiring capital assets. Cost recovery can take the form of depreciation, amortization, or depletion.
- 6Covenant not to competea contractual promise to refrain from conducting business or professional activities similar to those of another party
- 7Depletionthe cost recovery method to allocate the cost of natural resources as they are removed
- 8Depreciationthe cost recovery method to allocate the cost of tangible personal and real property over a specific time period
- 9Full-month conventiona convention that allows owners of intangibles to deduct an entire month's amortization in the month of purchase and month of disposition
- 10Half-year conventiona depreciation convention that allows owners of tangible personal property to take one-half of a year's worth of depreciation in the year of purchase and in the year of disposition regardless of when the asset was actually placed in service or sold
- 11Intangible assetsassets that do not have physical characteristics. Examples include goodwill, covenants not to compete, organizational expenditures, and research and experimentation expenses.
- 12Listed propertybusiness assets that are often used for personal purposes. Depreciation on listed property is limited to the business-use portion of the asset
- 13Luxury automobilean automobile on which the amount of annual depreciation expense is limited because the cost of the automobile exceeds a certain threshold. The definition excludes vehicles with gross vehicle weight exceeding 6,000 pounds
- 14Mid-month conventiona convention that allows owners of real property to take one-half of a month's depreciation during the month when the property was placed in service and in the month it was disposed of
- 15Mid-quarter conventionA depreciation convention for tangible personal property that allows for one-half of a quarter's worth of depreciation in the quarter of purchase and in the quarter of disposition. This convention must be used when more than 40% of tangible personal property is placed into service in the fourth quarter of the tax year
- 16Modified Accelerated Cost Recovery System (MACRS)the current tax depreciation system for tangible personal and real property. Depreciation under MACRS is calculated by finding the depreciation method, the recovery period, and the applicable convention
- 17Organizational expendituresexpenses that are (1) connected directly to the creation of a corporation or partnership, (2) chargeable to a capital account, and (3) generally amortized over 180 months (limited immediate expensing may be available)
- 18Percentage depletiona method of recovering the cost of a natural resource that allows a taxpayer to recover or expense an amount based on a statutorily determined percentage
- 19Personal propertyall tangible property other than real property
- 20Real propertyland and structures permanently attached to land
- 21Recovery perioda length of time prescribed by statute in which business property is depreciated or amortized
- 22Research and experimentation (R&E) costsexpenses for research including costs of research laboratories (salaries, materials, and other related expenses). Taxpayers can elect to amortize research and development costs over not less than 60 months from the time benefits are first derived from the research.
- 23179 expensean incentive for small businesses that allows them to immediately expense a certain amount of tangible personal property placed in service during the year
- 24197 intangiblesintangible assets that are purchased that must be amortized over 180 months regardless of their actual useful lives
- 25Start-up costsexpenses that would be classified as business expenses except that the expenses are incurred before the business begins. These costs are generally capitalized and amortized over 180 months, but limited immediate expensing may be available
- 26tax basisthe amount of a taxpayer's unrecovered cost of or investment in an asset
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- BUS 419 Chapter 10 Flashcards
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