In a terminal loss calculation, the balance is positive and deductible.

In a terminal loss calculation, the balance is positive and deductible.

• A. Negative balance; deductible.
• B. Zero balance; deductible.
• C. Positive balance; deductible.
• D. Positive balance; not deductible.

Answer: (C)

In a terminal year, you’re closing out a depreciable asset class and looking at the terminal loss balance that remains. If that balance is positive, it represents unused cost that can be deducted in the final year, reducing taxable income. That’s why a positive balance is deductible. If the balance were zero, there’s nothing to deduct; if it were negative, the tax treatment would not be deduction in the terminal year (it would instead relate to other adjustments such as recapture or income).

In a terminal year, you’re closing out a depreciable asset class and looking at the terminal loss balance that remains. If that balance is positive, it represents unused cost that can be deducted in the final year, reducing taxable income. That’s why a positive balance is deductible. If the balance were zero, there’s nothing to deduct; if it were negative, the tax treatment would not be deduction in the terminal year (it would instead relate to other adjustments such as recapture or income).