Colleen operates a business as a sole proprietorship. She purchased a computer for $10,000 last year. The computer is five- year recovery property for MACRS purposes and is depreciated under the regular MACRS rules. This year, Colleen incorporates the business and transfers the computer to the new corporation on July 20. The depreciation on the computer for this year allocable to the sole proprietorship is

Question

Quizplus · Accepted Answer

Under MACRS, the computer is depreciated over five years using the half-year convention. In the second year, the depreciation rate is 32%. Since the computer was transferred mid-year, only half of the annual depreciation applies to the sole proprietorship, which is $10,000 x 32% x 0.5 = $1,600.

Colleen Operates a Business as a Sole Proprietorship