Question

ABC Corp purchased and placed in service the following assets in 2018:

a. $ 2,000,000 of 7 year property on 4/15/18, and

b. $2,000,000 of 5 year property on 8/15/18

Calculate ABC's 2018 maximum depreciation deduction under MACRS, sec 170 and bonus depreciation if ABC elects out of bonus depreciation for the 5 year property.

Answer 1

MAXIMUM DEPRECIATION UNDER MACRS:-

A) $ 2,000,000 of 7 year property on 4/15/18:-

When using MACRS, an asset does not have any salvage value. This is because the asset is always depreciated down to zero as the sum of the depreciation rates for each category always adds up to 100%. When calculating depreciation expense for MACRS, always use the original purchase price of the asset as the depreciable base for each period. Note that you depreciate each category for one year longer than its classification period. For example, depreciate an asset classified under 3-Year MACRS for 4 years. Then depreciate an asset classified under 5-Year MACRS for 6 years, and so on.

So, the Above asset will be depreciated for 8 years and rates will be:-

Year......Rates

1..........14.29%

2..........24.49%

3..........17.49%

4..........12.49%

5...........8.93%

6...........8.92%

7...........8.93%

8..........4.46%

So, Maximum Dpereciation would be :- 14.29% of $2,000,000 = $285,800

Since the asset was purchased on 4/15/18, depreciation = 285800*8.5/12= $202,442

B) Similarily,  $2,000,000 of 5 year property on 8/15/18

Depreciation under MACRS for 1st year will be 20% of $2,000,000 = $ 400,000*4.5/12=$150,000

Since the asset was purchased on 8/15/18, depreciation = 285800*241/365= $188,706

BONUS DEPRECIATION

Bonus depreciation is a method of accelerateddepreciation which allows a business to make an additional deduction of 50% of the cost of qualifying property in the year in which it is put into service. This extra depreciation allowance is only for new equipment

So Amount of Bonus Depreciation in:-

a) 50% of $202,442 = $101,221

b) 50% of $150,000 = $ 75,000