Question

During 2019, William purchases the following capital assets for use in his catering business:

New passenger automobile (September 30) $52,600
Baking equipment (June 30) 15,780

Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation. Assume he has adequate taxable income.

Required:
Calculate William's maximum depreciation deduction for 2017, assuming he uses the automobile 100 percent in his business.

Answer 1

Answer:

The baking equipment will be expensed, not depreciated, for the full amount of $15,780.

Since the car was purchased during September, William can use the half year convention. Using a MACRS 5 year class property, half year convention table, the maximum William can depreciate is 20% of the car's value = $52,600 x 20% = $10,520

Explanation:

New passenger automobile (September 30) $52,600

Baking equipment (June 30) 15,780

MACRS 5 year class property , half year convention:

Year              Depreciation %                 Depreciation amount

1                           20%                                     $10,520

2                          32%                                     $16,832

3                          19.2%                                   $10,099.20

4                          11.52%                                  $6,059.52

5                          11.52%                                  $6,059.52

6                          5.76%                                   $3,029.76