Greenville Floral places a new tractor (7-year MACRS)into service on January 8,2016.They pay $28,000 for the tractor.This is the only business asset placed into service during this year.Greenville Floral wants to minimize the amount of depreciation deductible in 2016.What is Greenville Floral's cost recovery for 2016?

Question

Quizplus · Accepted Answer

Greenville Floral should use the straight-line depreciation method for the tractor, which has a 7-year MACRS life. Using the table for this depreciation method, we can see that the percentage to be used in the first year is 14.29%. Therefore, the depreciation deduction for 2016 would be $28,000 x 14.29% = $3,999.20. However, since Greenville Floral wants to minimize the amount of depreciation deductible in 2016, they should choose to expense the entire cost of the tractor under Section 179, which allows businesses to deduct the full cost of qualifying assets in the year they are placed into service. For 2016, the maximum Section 179 deduction is $2,000, so this is the best choice for Greenville Floral. The remaining cost of the tractor ($28,000 - $2,000 = $26,000) is depreciated over the remaining 6 years of its MACRS life. Therefore, the cost recovery for 2016 would be $2,000.

Greenville Floral Places a New Tractor (7-Year MACRS)into Service on January