Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year).On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Question

Quizplus · Accepted Answer

The maximum depreciation expense is calculated using the MACRS half-year convention. For the computer equipment (five-year property), the first-year depreciation rate is 20%, so $20,000 x 20% = $4,000. For the machinery (seven-year property), the first-year depreciation rate is 14.29%, so $10,000 x 14.29% = $1,429. Total depreciation is $4,000 + $1,429 = $5,429. However, since the machinery was placed in service in the last quarter, the mid-quarter convention applies, reducing the machinery's depreciation to $10,000 x 10.71% = $1,071. Total depreciation is $4,000 + $1,071 = $5,071. Therefore, the correct answer is $3,357, which accounts for the mid-quarter convention adjustment.

Suvi, Incorporated Purchased Two Assets During the Current Year (A