James purchased a new business asset (three-year personalty) on July 23, 2012, at a cost of $40,000.James takes additional first-year depreciation Determine the cost recovery deduction for 2012.
A)$8,333.
B)$26,666.
C)$33,333.
D)$41,665.
E)None of the above.

Question

Quizplus · Accepted Answer

Since James purchased the asset on July 23, 2012, he can only take 50% of the full-year depreciation for 2012. If we assume that the asset is eligible for bonus depreciation (which allows for an additional 50% deduction in the first year), James can deduct $20,000 for bonus depreciation ($40,000 cost x 50%). Then, James can use MACRS to determine the regular depreciation deduction, which for a three-year asset would be 33.33% of the remaining cost ($20,000) or $6,666. Therefore, the total cost recovery deduction for 2012 would be $20,000 + $6,666 = $26,666. Option B is the correct answer.

James Purchased a New Business Asset (Three-Year Personalty) on July