Tan Company acquires a new machine (ten-year property) on January 15, 2014, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2014, at a cost of $40,000. No election is made to use the straightline method. The company does not make the § 179 election and elects to not take additional first-year depreciation if available. Determine the total deductions in calculating taxable income related to the machines for 2014.

Question

Tan Company acquires a new machine (ten-year property) on January 15, 2014, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2014, at a cost of $40,000. No election is made to use the straight­line method. The company does not make the § 179 election and elects to not take additional first-year depreciation if available. Determine the total deductions in calculating taxable income related to the machines for 2014.

Quizplus · Accepted Answer

The machine acquired on January 15, 2014, is eligible for a 10-year MACRS depreciation using the MACRS table for "long-production-period property." The depreciation rate for the first year is 1/10. Therefore, the depreciation expense in 2014 is $20,000 ($200,000 x 1/10).

The machine acquired on November 5, 2014, is eligible for a 7-year MACRS depreciation using the MACRS table for "nonresidential real property and residential rental property." The depreciation rate for the first year is 2.461%. Therefore, the depreciation expense in 2014 is $982 ($40,000 x 2.461%).

The total depreciation expense in 2014 related to the machines is $20,000 + $982 = $20,982.

Therefore, the correct answer is B. $25,716 [($200,000 + $40,000) x 0.0765 + $20,982]. The additional depreciation is calculated using the 50% bonus depreciation for qualified property acquired and placed in service in 2014.

Tan Company Acquires a New Machine (Ten-Year Property) on January