Kemp Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2017.Kemp made one asset purchase: manufacturing equipment costing $543,600.The equipment has a 7-year recovery period and was placed in service on June 14.Assuming that Kemp made the Section 179 election with respect to the equipment,compute Kemp's 2017 cost recovery deduction.

Question

Quizplus · Accepted Answer

Since Kemp made the Section 179 election with respect to the equipment, they can deduct up to $510,000 in 2017. Therefore, they can deduct the entire cost of the equipment ($543,600) as a Section 179 expense deduction. 
The remaining $33,600 is then subject to regular MACRS depreciation. Since the equipment was placed in service on June 14, 2017, Kemp can take a half-year of MACRS depreciation for the equipment in 2017. Using the 200% declining balance method for 7-year property, the half-year depreciation rate is 14.29% (2.857% x 5). Therefore, Kemp's cost recovery deduction for the equipment in 2017 is:

Section 179 expense deduction: $543,600 
MACRS depreciation: ($33,600 x 14.29%) = $4,801 
Total cost recovery deduction: $543,600 + $4,801 = $529,201.

Therefore, choice (B) is the correct answer.

Kemp Inc,a Calendar Year Taxpayer,generated Over $10 Million Taxable Income in in 2017.Kemp