Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense.

Question

Quizplus · Accepted Answer

The half-year convention treats property placed in service or disposed of during the year as if it were placed in service or disposed of in the middle of the year. Therefore, Anne LLC is entitled to a half-year of depreciation in the year of acquisition and a half-year of depreciation in the year of disposition. The depreciation rate for five-year property is 20%. Therefore, the maximum depreciation expense for the fourth year is $30,000 x 20% x 1/2 = $3,000. However, since the property was disposed of on January 15, Anne LLC is only entitled to 15/365 of the full year's depreciation expense. Therefore, the maximum depreciation expense for the fourth year is $3,000 x 15/365 = $1,233.

Anne LLC Purchased Computer Equipment (Five-Year Property) on August 29