Question

What is the difference between the depreciation (or cost recovery) allowed and the depreciation (or cost recovery) allowable, and what effect does each have on the adjusted basis of property?

A) Allowed is the actual deduction taken; Allowable is the maximum deduction allowed. Both decrease the adjusted basis.
B) Allowed is the maximum deduction allowed; Allowable is the actual deduction taken. Both decrease the adjusted basis.
C) Allowed is the actual deduction taken; Allowable is the maximum deduction allowed. Both increase the adjusted basis.
D) Allowed is the maximum deduction allowed; Allowable is the actual deduction taken. Both increase the adjusted basis.

Answer 1

Depreciation allowed refers to the actual deduction taken, while depreciation allowable refers to the maximum deduction allowed. Both reduce the adjusted basis of the property.

Step-by-step explanation:

The difference between depreciation allowed and depreciation allowable is that allowed refers to the actual deduction taken, while allowable refers to the maximum deduction allowed by tax laws.

Both depreciation allowed and depreciation allowable result in a decrease in the adjusted basis of the property. The adjusted basis is the original cost of the property minus the depreciation deductions taken.

For example, if a property is purchased for $100,000 and the depreciation allowed in a given year is $5,000, the adjusted basis would decrease to $95,000. If the depreciation allowable for that year is $10,000, but only $5,000 is taken as a deduction, the adjusted basis would also decrease to $95,000.