What type of deduction allows taxpayers to recover the cost of property used in a trade or business?

Depreciation is the correct answer because it refers to the allocation of the cost of tangible property over its useful life. This deduction allows taxpayers, especially businesses, to recover the expense of the property used in their trade or business over several years rather than deducting the entire cost in a single year. The purpose of depreciation is to match the expense of the asset with the revenue it generates over time, reflecting the asset's gradual wear and tear or obsolescence.

In contrast, exemptions, capital gains, and ordinary income represent different tax concepts that do not pertain to the recovery of costs associated with business property. Exemptions generally reduce taxable income but do not account for recovering costs of property. Capital gains refer to the profits made from selling investments for more than their purchase price, while ordinary income encompasses regular earnings from work or business operations. None of these options involve the method through which a taxpayer can recover costs specifically for property used in a trade or business like depreciation does.