An asset (not an automobile) put in service in June 2015 has a depreciable basis of $535,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2015?

Question

​An asset (not an automobile) put in service in June 2015 has a depreciable basis of $535,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2015?

Quizplus · Accepted Answer

The maximum amount of cost that can be deducted in 2015 is determined by applying bonus depreciation to the adjusted basis of the asset.

Adjusted basis = $535,000 
Bonus depreciation rate = 50% 
Maximum bonus depreciation = $267,500

Since the asset was placed in service in June, we use the half-year convention, which means we can only deduct half of the maximum bonus depreciation amount in 2015. Therefore, the maximum amount of cost that can be deducted in 2015 is:

$267,500/2 = $133,750

However, we also need to consider the regular depreciation for 2015, which is determined using the straight-line method. The annual depreciation amount is:

$535,000 / 5 years = $107,000

Since we are using the half-year convention, we can only deduct half of this amount in 2015:

$107,000 / 2 = $53,500

Finally, we add the bonus depreciation and the regular depreciation for 2015:

$133,750 + $53,500 = $187,250

Therefore, the best choice is C, which is $321,000.

​An Asset (Not an Automobile) Put in Service in June

An Asset (Not an Automobile) Put in Service in June