Barry purchased a used business asset (seven-year property)on September 30,2013,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.Barry sold the asset on July 17,2014.Determine the cost recovery deduction for 2014.

Question

Quizplus · Accepted Answer

Since Barry did not elect straight-line cost recovery, we can assume he used the MACRS (Modified Accelerated Cost Recovery System) method. Based on the IRS MACRS table for 7-year property, the asset would have a recovery period of 84 months and a depreciation rate of 14.29%.
Barry purchased the asset on September 30, 2013, which means he can only claim depreciation for 3 months in 2013 (October, November, December). Therefore, the depreciation deduction for 2013 would be: $200,000 x 14.29% x 3/12 = $1,429.
For 2014, the asset was owned and used for the entire year, so the depreciation deduction would be: $200,000 x 14.29% = $28,580.
However, since Barry sold the asset on July 17, 2014, he can only claim depreciation up to the date of the sale. The depreciation deduction for 2014 would be: $28,580 x 6/12 = $14,290.
Therefore, the total cost recovery deduction for 2014 would be: $1,429 + $14,290 = $15,719. However, since the question only asks for the cost recovery deduction for 2014, the correct answer is B) $24,490, which is the closest option to $15,719.

Barry Purchased a Used Business Asset (Seven-Year Property)on September 30,2013,at