Question

If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may want to elect to use straight-line depreciation to slow down the cost recovery.

a-True
b-False

Answer 1

If a taxpayer has a business with a net operating loss carryover reducing current year income, they may want to elect to use straight-line depreciation to slow down the cost recovery.

Step-by-step explanation:

The statement True.

When a taxpayer has a net operating loss carryover that reduces their current year income, they may choose to elect straight-line depreciation to slow down the cost recovery. This can be beneficial because straight-line depreciation spreads the cost of an asset evenly over its useful life, resulting in lower annual depreciation expense compared to other methods.

For example, let's say a taxpayer has a net operating loss carryover of $50,000 and they purchase a piece of equipment valued at $100,000. If they choose to use straight-line depreciation over 10 years, they can deduct $10,000 per year ($100,000 divided by 10), effectively reducing their taxable income.