An asset (not an automobile) put in service in June 2015 has a depreciable basis of $2,035,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2015 (assume no income limitation)?

Question

​An asset (not an automobile) put in service in June 2015 has a depreciable basis of $2,035,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2015 (assume no income limitation)?

Quizplus · Accepted Answer

Since bonus depreciation is extended into 2015, the expensing election can be taken. This allows for immediate expensing of up to $500,000 of qualified property placed in service during the year. Therefore, the maximum amount that can be deducted in 2015 is the lesser of the depreciable basis or $500,000 plus the bonus depreciation.

The bonus depreciation for property placed in service in 2015 is 50%. Therefore, the bonus depreciation for this asset is $1,017,500 ($2,035,000 x 50%).

Since the asset is placed in service in June, a half-year convention is used for depreciation. The regular MACRS depreciation for a 5-year asset with a half-year convention is 20% in the first year. Therefore, the regular depreciation for this asset is $407,000 ($2,035,000 x 20%).

The total amount that can be expensed and depreciated in 2015 is $1,407,000 ($500,000 + $1,017,500 + $407,000). Therefore, the correct answer is B.

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

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