In May 2018, Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $60,000. Preston's income is $100,000. Preston does not want to claim bonus depreciation. If Preston wishes to maximize his total 2018 cost recovery deduction, what will his total cost recovery deduction be on the properties purchased in 2018?
A)$100,000
B)$122,000
C)$210,000
D)$42,000
E)$34,430

Question

Quizplus · Accepted Answer

To maximize his total 2018 cost recovery deduction, Preston should choose straight-line depreciation for both properties.

The 5-year property has a depreciation rate of 20% and a half-year convention, so Preston can deduct $15,000 ($150,000 x 0.10 x 0.5) in 2018.

The 7-year property has a depreciation rate of 14.29% and a half-year convention, so Preston can deduct $2,142 ($60,000 x 0.1429 x 0.5) in 2018.

Therefore, his total cost recovery deduction for 2018 will be $17,142 ($15,000 + $2,142).

In May 2018, Preston Purchases 5-Year MACRS Property Costing $150,000