Section 4: 10–20%T13
Basis, Depreciation, and Cost Recovery Planning
Exam Insight
Cost recovery is the single largest 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 correctly establish basis, sequence the Section 179 / bonus / MACRS deductions, and time elections to maximize multi-year after-tax value.
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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.