What method of depreciation is allowed by the IRS, allowing an owner to recover the cost over an asset's useful life?

The method of depreciation allowed by the IRS, which enables an owner to recover the cost of an asset over its useful life, is referred to as cost recovery. This method is pivotal for businesses, as it provides the opportunity to deduct the cost of capital assets used in the business over a specified time frame, in accordance with IRS guidelines.

Cost recovery aligns with the principle that assets lose value over time due to wear and tear, obsolescence, or other factors affecting their use. By utilizing this method, property owners and businesses can reduce their taxable income in the years following the purchase of the asset, leading to financial benefits that can improve cash flow and overall profitability. Each type of property is assigned a specific recovery period based on IRS classifications, reflecting the expected useful life of the asset.

In contrast, appreciation reflects an increase in an asset's value over time, which is not a method of recovering costs. The term market adjustment typically pertains to changes in an asset's value based on market conditions rather than the recovery of costs. Expense deduction can refer to specific operational costs but does not encompass the systematic recovery of capital expenses as defined by the tax code. This distinction underlines why cost recovery is the correct choice in this context.