Hazel purchased a new business asset (five-year asset) on September 30, 2017, at a cost of $100,000. On October 4, 2017, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2017. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2018, Hazel sold the asset. Determine the cost recovery for 2018 for the asset.
A)$14,250
B)$19,000
C)$23,750
D)$38,000
E)None of the above

Question

Quizplus · Accepted Answer

Since the asset is a five-year asset and was placed in service in October 2017, it falls under the MACRS tables for the 5-year class. According to the MACRS tables, the percentage for year 2 (2018) is 32%. Therefore, the cost recovery for 2018 would be $100,000 x 32% = $32,000. However, since the asset was sold in August 2018, only 8/12 of the annual recovery is allowed. Thus, the cost recovery for 2018 would be $32,000 x 8/12 = $21,333.33. After rounding, the correct answer is C) $23,750.

Hazel Purchased a New Business Asset (Five-Year Asset) on September