Fundamentals
Under the U.S. tax code, the general rule for depreciation is found in which section that states 'there shall be allowed ... a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)'?
§167 of the Internal Revenue Code
What code section allows expensing the cost of certain business assets instead of depreciating?
§179 of the Internal Revenue Code
What system under §168 governs depreciation of tangible property?
MACRS (Modified Accelerated Cost Recovery System)
What is the common name for the 'additional first-year depreciation allowance' under §168(k)?
Bonus depreciation
What is the rule that taxes gain on sale of depreciated property as ordinary income up to prior depreciation?
Depreciation recapture
According to IRS Publication 946, what is depreciation?
An annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use it
For tax years beginning in 2025 what is the maximum Section 179 deduction before phase-outs?
$2,500,000
Under §168, what method must be used for real property?
Straight-line method
What percentage of a qualifying asset’s cost can be immediately deducted (as of 2025 rules)?
100%
Which code section covers recapture for personal property?
§1245
According to IRS Topic 704, how is depreciation defined?
The recovery of the cost of the property over a number of years
When does the Section 179 deduction begin to phase out?
What is the Alternative Depreciation System (ADS) and when is it required?
A system with longer recovery periods and straight-line method, required for certain property like tax-exempt or foreign-use property
Name two property types that qualify for bonus depreciation.
Property with £20-year recovery, off-the-shelf software, or QIP
Which section covers recapture for real property and what type of depreciation?
§1250 – additional depreciation over straight-line
Under §167, what is the 'basis' for depreciation of property?
The adjusted basis provided in §1011 (the taxpayer’s basis) of the property
Section 179 property must be used more than what percentage for business use?
More than 50% business use
Name one MACRS convention used to determine when property is depreciated.
Half-year, mid-quarter, or mid-month convention
In 2025, what date must an asset be placed in service by to receive bonus depreciation?
Trump Day (Jan 19th, 2025)
What IRS form reports gain and recapture on sale of business property?
Form 4797
When does depreciation begin according to IRS rules?
When the property is ready and available for a specifically assigned function (placed in service)
True or False: Section 179 can create a Net Operating Loss (NOL).
False — it’s limited to business income, excess carried over
What is the typical recovery period under MACRS for 5-year property vs. real property?
5 years for personal property; 27.5–39 years for real property
If electing out of bonus depreciation, what must a taxpayer do?
File an election by asset class on Form 4562 by the return’s due date
When property is converted to personal use or sold, what basis adjustment must be considered?
Adjusted basis (original cost minus depreciation allowed/allowable)