Ralph buys a new truck (5-year MACRS property)to use in his landscaping business on May 13,2017,at a cost of $18,000.On November 5,2017,Ralph takes advantage of an end of the season clearance sale to purchase various landscaping equipment (7-year MACRS property)costing $34,000.Assuming that Ralph does not wish to immediately expense any of the cost of the property purchased this year,what is his 2017 maximum allowable cost recovery deduction?

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The correct answer is B. The maximum allowable cost recovery deduction for 2017 is $5,714. This is calculated by taking the cost of the truck ($18,000) and multiplying it by the MACRS depreciation rate for a 5-year property (20%). This gives us a depreciation deduction of $3,600 for the truck. We then take the cost of the landscaping equipment ($34,000) and multiply it by the MACRS depreciation rate for a 7-year property (14.29%). This gives us a depreciation deduction of $4,859 for the landscaping equipment. Adding these two depreciation deductions together gives us a total depreciation deduction of $8,459. However, since Ralph does not wish to immediately expense any of the cost of the property purchased this year, we need to reduce this depreciation deduction by the amount of the salvage value of the property. The salvage value of the truck is $0, and the salvage value of the landscaping equipment is $5,000. Therefore, the total salvage value of the property is $5,000. Subtracting this salvage value from the total depreciation deduction gives us a maximum allowable cost recovery deduction of $5,714.

Ralph Buys a New Truck (5-Year MACRS Property)to Use in His