Kemp Inc., a calendar year taxpayer, generated over $10 million taxable income in 2014. 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 2014 cost recovery deduction.

Question

Quizplus · Accepted Answer

Kemp can elect to expense $500,000 under Section 179. The remaining $43,600 is depreciated using MACRS. The half-year convention applies, so the first-year MACRS deduction is $43,600 * 14.29% = $6,230. Total cost recovery = $500,000 + $6,230 = $506,230.

Kemp Inc, a Calendar Year Taxpayer, Generated Over $10 Million Taxable