What is the IRS term for depreciation known as?

The term used by the IRS for depreciation is "Cost recovery." This concept refers to the process through which a property owner can deduct the cost of an asset over its useful life as an expense on their taxes. This practice recognizes that assets, like buildings or equipment, lose value over time and allows property owners to recover their investment gradually.

Cost recovery is a crucial aspect of tax law that affects real estate investments. It allows for annual deductions that can significantly reduce taxable income and thus the overall tax burden for investors. This principle is more than just an accounting tool; it also plays a vital role in investment strategies by allowing investors to understand the potential tax implications of their asset holdings.

The other terms mentioned in the choices relate to different financial concepts. “Cost basis” refers to the original value of an asset for tax purposes, used to determine capital gains or losses. “Asset allocation” refers to how an investment portfolio is divided among different asset categories. “Value adjustment” typically refers to changes made to the market value of an asset, which doesn't directly relate to the tax treatment of depreciation. Therefore, "Cost recovery" is the most fitting term associated with the IRS’s understanding of depreciation.