Section 4: 10–20%T13
Basis, Depreciation, and Cost Recovery Planning
Exam insight
Cost recovery is the biggest lever a tax planner controls on the deduction side, and OBBBA made 100% bonus depreciation permanent for property placed in service after January 19, 2025. The AICPA tests whether you can set up basis correctly, stack the Section 179 / bonus / MACRS deductions in order, and time elections to get the most multi-year after-tax value.
What AICPA wants you to know
- 1Compute the initial and adjusted basis of acquired, gifted, and inherited property, including the gift double-basis rule and the date-of-death FMV step-up.
- 2Apply the correct ordering of cost recovery: Section 179 first, then bonus depreciation, then regular MACRS.
- 3Calculate MACRS deductions under the half-year, mid-quarter, and mid-month conventions for personal and real property.
- 4Apply the Section 179 dollar limit, the investment-based phaseout, and the taxable income limitation (with carryover).
- 5Recognize when to elect out of 100% bonus depreciation by class to shift deductions into higher-rate future years.
- 6Amortize Section 197 intangibles straight-line over 15 years regardless of actual useful life.
Patterns in this topic
The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.
The Basis PlannerSet basis by how property arrived: donor carryover for gifts (with a dual loss basis), date-of-death step-up for inheritances, and add-back for wash sales.The Cost Recovery PlanStack the write-offs in order: section 179 first (income-capped), then 100 percent bonus (can create a loss), then MACRS on any basis left.
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.