An asset (not an automobile) put in service in June 2016 has a depreciable basis of $2,035,000, a recovery period of 5 years, and is the only asset placed in service this year. Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2016 (assume no income limitation)?

Question

​An asset (not an automobile) put in service in June 2016 has a depreciable basis of $2,035,000, a recovery period of 5 years, and is the only asset placed in service this year. Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2016 (assume no income limitation)?

Quizplus · Accepted Answer

The bonus depreciation rate for assets placed in service in 2016 is 50%. The half-year convention means that 50% of the cost of the asset is eligible for depreciation in the first year. The expensing election (Section 179) allows for an additional deduction of up to $500,000 in the first year, but this is limited to taxable income. Since there is no income limitation given, the maximum amount of cost that can be deducted is $1,535,000 (($2,035,000 x 50%) + $500,000).

​An Asset (Not an Automobile) Put in Service in June

An Asset (Not an Automobile) Put in Service in June