Deprecation, Cost Recovery, Amortization, and Depletion - Chapter Summary Essay Sample

Published: 2022-04-12
Deprecation, Cost Recovery, Amortization, and Depletion - Chapter Summary Essay Sample
Type of paper:  Essay
Categories:  Tax system
Pages: 3
Wordcount: 590 words
5 min read

"Deprecation, Cost Recovery, Amortization, and Depletion" is a chapter that talks more about the importance of the cost consumption concept for organizations that are more familiar with the time periods necessary for depreciation, cost recovery, depletion and amortization. The cost of assets, therefore, determines how these four concepts are going to be undertaken by a particular company based on its internal revenue code. It also means that the accounting period is compared to the period an asset took to improve its cost within the company and hence deductions can occur at this point (Hoffman et al., 2018). Assets that are made for the production of income can have their income deducted by the taxpayers because they represent the cost recovery stage whereby depreciation may either be through amortization or depletion.

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Depreciation and cost recovery usually take different periods for them to happen and therefore the authors argue that their rationale is more concerned with the real property and personal property. Real properties, in this case, represent structures such as buildings which are permanently connected to the land while personal property may include furniture, equipment, machinery and any other asset that merely is movable. Hence, these two assets are used as the primary income producers for business persons and companies (Hoffman et al., 2018). Cost recovery at this point may not be allowed if an asset's tax is already deductible and its overall cost reduced. It means that the value of that specific property is diminished when tax returns and deductions are carried out through the cost recovery process.

Special rules have thus been devised to guide through the process of cost recovery and compliance costs as well. For example, one of the rules states that there should be an immediate expense of about $179 which acts as an additional deprecation when one wants to carry out investment on their capital assets. The second rule states that additional first-year depreciation should be applied during the initial year of an investment that has been carried out successfully to allow deprecation. The Congress, therefore, approved these two rules and also stated that there should be an additional special rule known as 'listed property' to reduce the effect of taxpayers (Hoffman et al., 2018). The rule requires that minimum tax should be applied on assets that have undergone through the hands of taxpayers who can use the MACRS principles instead. Hence, this has for a very long time acted as the alternative depreciation system which has replaced the MACRS standards.

The amortization process can be described as one through which deduction occurs for the recovery of the hidden costs of intangible assets to be achieved. Furthermore, the method may take 15 years through which deduction is carried out through the amortization process. Amortizations of the intangible assets also require that a business must first complete its acquisition process or else deductions will be made with immediate effect. A $197 intangible asset undergoes amortization so that no further depreciation is allowed to occur for the product to keep losing value (Hoffman et al., 2018).

In conclusion, depreciation, cost recovery, amortization, and depletion are all concepts which are quite essential for the overall value of an asset, may it be real, personal or intangible. These concepts may depend on each other within an asset of any given business, and therefore it is crucial for an individual to understand the rules of cost recovery so that losses are not realized at all.


Hoffman, W. H, Young, J. C., Raabe, W. A., Maloney, D. M. & Nellen, A. (2018). "Individual Income Taxes." Cengage Learning.

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