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Property must be understood in general property is

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property must be understood. In general, property is depreciable if it meets the following basic requirements:1.It must be used in business or held to produce income.2.It must have a determinable useful life, and the life must be longer than one year.3.It must be something that wears out, decays, gets used up, becomes obsolete, or loses value from naturalcauses.4.It is not inventory, stock in trade, or investment property.Depreciable propertyis classified as eithertangible or intangible. Tangible property can be seen or touched,and it includes two main types calledpersonal propertyandreal property. Personal property includes assetssuch as machinery, vehicles, equipment, furniture, and similar items. In contrast, real property is land andgenerally anything that is erected on, or attached to land. Land itself, however, is not depreciable because itdoes not have a determinable life.Intangible propertyis personal property as a copyright, patent, or franchise. Engineering projects rarely includethis class of property.A company can begin to depreciate it owns when the property isplaced in servicefor use in the business or forthe production of income. Property is considered to be placed in service when it is ready and available for aspecific use, even if it is not actually used yet. Depreciation stops either when the cost of placing it in servicehas been recovered or it is retired from service.Depreciation Methods and Related Time PeriodsThe depreciation methods permitted under the Internal Revenue Code have changed with time. In general, thefollowing summary indicates theprimary methods used for property placed in service during three distinct timeperiods.The primary methods used were straight-line (SL), declining balance (DB), and sum-of-the-digits(SYD). We will refer to these methods, collectively, as theclassical or historical methodsof depreciation.Adjusted (cost) basis– the original cost basis of the asset, adjusted by allowable increases or decreases, is usedto compute depreciation and depletion deductions. For example, the cost of any improvement to a capital assetwith a useful life greater than one year increases the original cost basis, and a casualty or theft loss decreases it.If the basis is altered, the depreciation deduction may need to be adjusted.Basis, or cost basis– the initial cost of acquiring an asset (purchase price plus any sales taxes), includingtransportation expenses and other normal costs of making the asset serviceable for its intended use. This amountis also called theunadjusted cost basis.Book value (BV)– the worth of a depreciable property as shown on the accounting records of a company. It isthe original cost basis of the property, including any adjustments, less all allowable depreciation or depletiondeductions. It thus represents the amount of capital that remains invested in the property and must be recoveredin the future through the accounting process. The BV of a property may not be a useful measure of its marketvalue.

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Term
Spring
Professor
Mrs. Minerva Terceno

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