Explain what is meant by cost recovery, recovery method, and recovery period, and identify four basic conditions for the allowance of cost recovery deductions.

Describe several methods used to compute depreciation deductions for pre-ACRS assets, and distinguish depreciation from obsolescence.

Explain how accelerated cost recovery systems (ACRS and MACRS) allow the recovery of investment capital for income tax purposes.

Explain the limitations on passive activity losses and credits.

Explain the requirements for deducting business entertainment expenses.

Explain the requirements for deducting nonbusiness expenses paid for the production of income.

Explain the 2 percent floor on miscellaneous itemized deductions.

Explain the rules regarding the deductibility of expenses for home offices and vacation homes.

Explain the rules regarding the deductibility of losses.

Explain the rules regarding the deductibility of bad debts.