Principles of Taxation for Business and Investment Planning, 5/e

Sally M Jones, University of Virginia

The Measurement of Taxable Income

Property Acquisitions and Cost Recovery Deductions

Chapter 6 Objectives

After studying this chapter, you should be able to:

1. Describe the factors that determine if a business expenditure qualifies as a current deduction or a capital cost.

2. Define the terms tax basis and adjusted basis.

3. Explain why the use of leverage can reduce the after-tax cost of purchased assets.

4. Apply the formula to compute cost of goods sold.

5. Describe the relationship between recovery period, depreciation method, and depreciation convention in the MACRS computation.

6. Explain the benefit of and the limitations on the limited expensing election.

7. Incorporate depreciation deductions into the computation of net present value.

8. Explain how a firm recovers the cost of purchased intangibles through amortization.

9. Distinguish between cost depletion and percentage depletion.

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