Chapter 10 Key Terms

Frage	Antworten
§179 expense	an incentive for small businesses that allows them to immediately expense a certain amount of tangible personal property placed in service during the year.
§197 intangibles	intangible assets that are purchased that must be amortized over 180 months regardless of their actual useful lives.
Adjusted basis	an 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.
Amortization	the method of recovering the cost of intangible assets over a specific time period.
Bonus depreciation	additional depreciation allowed in the acquisition year for tangible personal property with a recovery period of 20 years or less.
Cost depletion	the 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.
Cost recovery	the method by which a company expenses the cost of acquiring capital assets. Cost recovery can take the form of depreciation, amortization, or depletion.
Covenants not to compete	a contractual promise to refrain from conducting business or professional activities similar to those of another party.
Depletion	the cost recovery method to allocate the cost of natural resources as they are removed.
Depreciation	the cost recovery method to allocate the cost of tangible personal and real property over a specific time period.
Full-month convention	a convention that allows owners of intangibles to deduct an entire month’s amortization in the month of purchase and month of disposition.
Half-year convention	a 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.
Intangible assets	assets that do not have physical characteristics. Examples include goodwill, covenants not to compete, organizational expenditures, and research and experimentation expenses.
Listed property	business assets that are often used for personal purposes. Depreciation on listed property is limited to the business-use portion of the asset.
Luxury automobile	an 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.
Mid-month convention	a 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.
Mid-quarter convention	a 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 percent of tangible personal property is placed into service in the fourth quarter of the tax year.
Modified 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.
Organizational expenditures	expenses 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).
Percentage depletion	a 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.
Personal property	all tangible property other than real property.
Real property	land and structures permanently attached to land.
Recovery period	a length of time prescribed by statute in which business property is depreciated or amortized.
Research and experimentation (R&E) costs	expenses 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.
Start-up costs	expenses 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.
Tax basis	the amount of a taxpayer’s unrecovered cost of or investment in an asset; see also adjusted tax basis.

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