Clay LLC placed in service machinery and equipment (7-year property)with a basis of $2,450,000 on June 6,2016.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing)(Use MACRS Table 1 in the text)(Round final answer to the nearest whole number)

Question

Clay LLC placed in service machinery and equipment (7-year property)with a basis of $2,450,000 on June 6,2016.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing)(Use MACRS Table 1 in the text)(Round final answer to the nearest whole number)

Quizplus · Accepted Answer

The maximum depreciation expense includes $500,000 of §179 expense and MACRS depreciation over the remaining cost. The remaining cost ($1,950,000) is depreciated using MACRS over 5 years (not including the first year), which gives a depreciation rate of 20%. 
Therefore, the total depreciation expense for 2016 would be: 
($2,450,000 - $500,000) x 20% = $390,000 
But since property was placed in service mid-year, we use the half-year convention and multiply by 50%. 
$390,000 x 50% = $195,000 
Finally, add back the §179 expense: 
$195,000 + $500,000 = $695,000 
Rounded to the nearest whole number, the answer is B ($427,244 is not a rounded whole number).

Clay LLC Placed in Service Machinery and Equipment (7-Year Property)with