Lax LLC purchased only one asset during the current year (a full 12-month tax year).On August 26 Lax placed in service computer equipment (five-year property) with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation).

Question

Quizplus · Accepted Answer

The correct method to calculate depreciation will be MACRS (Modified Accelerated Cost Recovery System). Under MACRS, the five-year property is depreciated over 5 years using the Double Declining Balance (DDB) method.

First, we need to calculate the depreciation rate, which for the 5-year property will be 20% (100%/5).

Since the asset was placed in service on August 26, it will be in service for only 4.33 months (from August 26 to December 31).

Using the DDB method, the depreciation rate for the first year will be 40% (2 x 20%).

Therefore, the maximum depreciation expense for the current year will be:

$20,000 x 40% x 4.33/12 = $2,858

Therefore, the correct answer is B) $2,858

Lax LLC Purchased Only One Asset During the Current Year