Pyle Inc., a calendar year taxpayer, generated over $10 million taxable income in 2020. Pyle made one asset purchase: new heating and air conditioning system for existing nonresidential real property at a cost of $1,322,000. The system has a 39-year recovery period and was placed in service on February 9. Assuming that Pyle made the Section 179 election with respect to the acquisition, compute Pyle's 2020 cost recovery deduction. Use Table 7-4.

Question

Quizplus · Accepted Answer

The correct cost recovery deduction is $1,046,328. This is calculated by taking the Section 179 deduction limit for property placed in service in 2020, which is $1,040,000, and adding the allowed depreciation on the remaining cost basis ($1,322,000 - $1,040,000 = $282,000). The depreciation for the first year on the remaining basis, using the mid-month convention for nonresidential real property over a 39-year recovery period, results in an additional deduction, which when added to the $1,040,000, totals $1,046,328.

Pyle Inc, a Calendar Year Taxpayer, Generated Over $10 Million Taxable