Final answer:
True, a taxpayer with a net operating loss carryover might elect to use straight line depreciation to slow down cost recovery, as it provides smaller annual deductions compared to accelerated depreciation, which can be beneficial when expecting higher future income.
Step-by-step explanation:
If a taxpayer has a business with a net operating loss carryover reducing current year income, true, they may want to elect to use straight line depreciation to slow down cost recovery. This is because straight-line depreciation spreads the deduction for the cost of an asset evenly throughout its useful life, resulting in smaller annual deductions compared to accelerated methods of depreciation. Thus, by choosing straight line, a taxpayer facing a year with lower income due to a net operating loss carryover might delay significant depreciation expenses to future years when the business may have higher taxable income, leveraging the tax benefit more effectively.
Businesses face losses for various reasons and if these are sustained in the long run, the process of reducing or ceasing production is known as exit. In this context, depreciation methods affect the timing of tax deductions and could have a strategic impact on a business's tax liabilities, especially when dealing with carryover losses.