Section 3: 5–15%R9

Basis and Cost Recovery (Depreciation, Section 179, Bonus)

Exam insight

Almost every property question starts with basis and ends with cost recovery. Get the depreciation order wrong, Section 179, then bonus, then MACRS, and the rest of your answer unravels.

What AICPA wants you to know

1Compute the initial basis of purchased, gifted, and inherited property
2Apply the gift double-basis rule and the inherited-property FMV step-up
3Calculate MACRS depreciation using the correct convention and recovery period
4Order Section 179 expensing, bonus depreciation, and MACRS correctly
5Apply OBBBA-era limits: $2.5M Section 179 and 100% permanent bonus depreciation
6Amortize Section 197 intangibles and start-up/organizational costs

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Cost Recovery EngineLayer the deductions in order: section 179 first, then bonus, then MACRS on what remains, each with its own convention.The Gain Character CallCompute the gain, then character it: capital, ordinary, or section 1231, with recapture peeling off the ordinary slice first.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.