Tasha LLC purchased furniture (seven-year property)on April 20 for $20,000 and used the half-year convention to depreciate it. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense. (Use MACRS Table 1)(Round final answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

Using MACRS Table 1 for seven-year property, the depreciation rate for Year 4 is 10.71%. Since Tasha LLC used the half-year convention, we can multiply the depreciation rate by 50% for a maximum depreciation expense of 5.36%. 
Total depreciation for Year 4 = $20,000 x 5.36% = $1,072. 
However, since the property was disposed of on December 15, we must prorate the depreciation based on the number of months the property was in use. 
December is considered a half-month, so the property was in use for 11.5 months (January-November and half of December). 
Prorated depreciation for Year 4 = $1,072 x 11.5/12 = $1,029. 
Therefore, the maximum depreciation expense for Year 4 is $1,029, which is option C.

Tasha LLC Purchased Furniture (Seven-Year Property)on April 20 for $20,000