Question

Weston acquires a new office machine (seven-year class asset) on August 2, 2017, for $75,000. This is the only asset Weston acquired during the year. He does not elect immediate expensing under § 179. He claims the maximum additional first-year depreciation deduction. On September 15, 2019, Weston sells the machine.

Click here to access the depreciation tables in the textbook.

If required, round your answers to the nearest dollar.

a. Determine Weston’s cost recovery for 2017 and 2018.
2017: $__________
2018: $__________

b. Determine Weston’s cost recovery for 2019.
$__________

Answer 1

Solution:

		Bonus	MACRS Depreciation	Total
A	2017	$         37,500	$                            5,359	$                       42,859
	2018	$                  -	$                            9,184	$                         9,184
B	2019	$                  -	$                            3,279	$                         3,279

Working:

1) Calculation of MACRS

Year	Depreciable Cost (a)	Macrs Rate@ 7 Year	Depreciation Expense (a*b)	Calculation
2017	$         37,500	14.29%	$                         5,359	37500*14.29%
2018	$         37,500	24.49%	$                         9,184	37500*24.49%
2019	$         37,500	17.49%	$                         3,279	37500*17.49%*1/2

Notes:

1) Additional Bonus depreciation is allowed up to 50% in first year.

2) Here we used MACRS Half Year Convention.

3) 2019 we sold the asset in the middle of year, so we claim 50% cost recovery.