In May 2013,Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $140,000.Preston's income is $100,000.If Preston wishes to maximize his total 2013 cost recovery deduction,what will his total cost recovery deduction be on the properties purchased in 2013? (Preston elects out of bonus depreciation.)

Question

Quizplus · Accepted Answer

To calculate the total cost recovery deduction, we need to determine the depreciation expense for each property using the MACRS tables.

For the 5-year MACRS property, the depreciation rate for year 1 is 20%, which gives us a deduction of $30,000 ($150,000 x 20%).

For the 7-year MACRS property, the depreciation rate for year 1 is 14.29%, which gives us a deduction of $20,006 ($140,000 x 14.29%).

Therefore, the total cost recovery deduction for both properties is $50,006 ($30,000 + $20,006).

Note: Bonus depreciation is not taken into account in this scenario as Preston has elected out of it.

In May 2013,Preston Purchases 5-Year MACRS Property Costing $150,000 and 7-Year