Watson Company purchases used equipment (5-year MACRS property)for $2,350,000 on July 8,2013.What is Watson' maximum allowable cost recovery deduction for 2013 on the equipment if this is the only purchase of equipment for 2013? (Watson elects out of bonus depreciation.)

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The maximum allowable cost recovery deduction for 5-year MACRS property in the first year is 20% of the cost. Therefore, 20% of $2,350,000 is $470,000. However, since the equipment was purchased in the second half of the year, the half-year convention applies, reducing the deduction to half of $470,000, which is $235,000. However, the question asks for the maximum allowable deduction, which includes the Section 179 expense election. For 2013, the maximum Section 179 deduction is $500,000, so the maximum allowable deduction is $500,000.

Watson Company Purchases Used Equipment (5-Year MACRS Property)for $2,350,000 on July