In 2013,Henry purchases $2,050,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2013? (Henry elects out of bonus depreciation.)
A)$335,000
B)$378,655
C)$500,000
D)$678,640
E)$721,495

Question

Quizplus · Accepted Answer

The maximum depreciation deduction for the equipment can be found using the MACRS 7-year depreciation method. Using this method, the annual depreciation deduction would be $292,857 ($2,050,000/7). However, since Henry elects out of bonus depreciation, he cannot deduct more than his taxable income of $100,000. Therefore, his maximum depreciation deduction for 2013 is $100,000. To find the adjusted basis for future years, subtract the 2013 depreciation deduction from the original cost: $2,050,000 - $100,000 = $1,950,000.

In 2013,Henry Purchases $2,050,000 of Equipment with a Useful Life