Barry purchased a used business asset (seven-year property)on September 30,2016,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,did not take additional first-year depreciation (if available),and did not elect straight-line cost recovery.Barry sold the asset on July 17,2017.Determine the cost recovery deduction for 2017.
A)$19,133
B)$24,490
C)$34,438
D)$55,100
E)None of the above

Question

Quizplus · Accepted Answer

Since Barry did not elect §179 or additional first-year depreciation, the asset is subject to MACRS depreciation. Since he did not elect straight-line depreciation, we apply the MACRS table for 7-year property using the half-year convention, which assumes that the asset is placed in service in the middle of the year, regardless of the actual purchase date.

For 2016, since the asset was placed in service in September and the half-year convention applies, we use the 3.5-year depreciation rate, which is 10.5%.

Depreciation for 2016 = $200,000 x 10.5% = $21,000

For 2017, since Barry sold the asset in July and the half-year convention applies, we use the 6.5-year depreciation rate, which is 7.61%.

Depreciation for 2017 = $200,000 x 7.61% = $15,220

Therefore, the cost recovery deduction for 2017 is $15,220.

Barry Purchased a Used Business Asset (Seven-Year Property)on September 30,2016,at